TAYLORSVILLE, UT | 30 July 2008 | In their first 100 hours in control of Congress in early 2007, Democrats pushed to accomplish as much as possible and effect immediate change. That change was to be reflective of the party’s ability to create quick, effective solutions. Unfortunately, much of the legislation passed as part of the 100-hour plan has been perfectly reflective of the party’s abilities, or lack thereof. A case in point would be the Fair Minimum Wage Act of 2007—a display-case trophy that not only fails to help, but actually hurts the people it was supposed to save.Signed into law on May 25, 2007, the act raises the federal minimum wage from $5.15 per hour to $7.25 per hour in 3 incremental steps. The 2nd of those steps went into effect on Thursday, July 24th, raising the wage to $5.85 per hour (a jump of 70 cents per hour).

Breaking the change down into 3 steps was supposed to help businesses make a smooth transition into the final minimum wage of $7.25 (a jump of 140 cents per hour). Really, easing into the changes has only given employers greater time to stew over the problems that this law will cause for them. Seldom are the dire effects of bad legislation so readily visible at the very moment that the legislation takes effect.

Key Points

• Anytime the government dictates a minimum wage regardless of the value created by any given employee, they are creating a damaging sense of entitlement for that employee.
• If dollars follow value, then employees who receive additional dollars without creating additional value are a cumbersome burden on the intricate workings of the free market system.
• In order to cover the higher wage, employers who wish to stay in business are left with 4 options, all of which hurt employers and employees because they violate the fact that dollars follow value:
  • Shrink profit margins—business need to have reserves that will carry them through lean months. Shrinking or depleting those reserves brings businesses closer to the brink and often brings undue stress to the work environment.
  • Raise the costs of goods and services—in addition to the potential loss of customers, the net effect of raised prices is an increase in the cost of living. Ironically, this increase in the cost of living is often greater proportionally than the increase in wages. So, while minimum wage employees will take home more income, they will tend to keep less of it because they will have to pay more for bread, milk, and basic essentials. “David Heath, owner of Tiki Tan in College Station, Texas, said the increase will force him to raise prices for his monthly tanning services by about 12 percent. There just isn’t any room for profit, and so this is why prices will have to go up.”
  • Reduce payroll—the cost of giving “more green” to some workers is often giving “pink” to others. Those who happen to keep their jobs will have the honor of fulfilling the duties of dismissed employees. If a small business with 5 employees has to cut one, each remaining worker will have to do 25% more to keep pace with previous production. If the 4 employees are kept at minimum wage, their income will increase approximately 12%. And they call it “Fair Minimum Wage”.
  • Ignore the law—if an employer chooses to ignore the law and pay less, he is left with a limited pool of potential empleados/employees. The sense of entitlement created by minimum wage laws is one of the major driving forces behind the mentality that there are some jobs that Americans just won’t do.
• The pay increases laid out by Fair Minimum Wage Act of 2007 were calculated to keep up with a projected increase in cost of living. Because recent events have caused the price of just about everything to go up, the wage increase is already obsolete. “Walter Jasper, who earns minimum wage…will still struggle with the higher gas and food prices hammering Americans. “It will help out a little,” said Jasper.” Any additional inflation caused by the increase in wages will only add to this problem.

Conclusion

Violation of principle will always bring unintended consequences. Failure to recognize the connection of those consequences to their true cause will often lead to further violation of principle. As minimum wage workers feel the negative effects of this law, they are likely to complain to their elected officials who will, in turn, push another damaging piece of trophy legislation and raise wages again.

Amidst all of the manufactured turmoil, however, it is nice to see that the free exchange between individuals outpaces the 100-hour plan. In spite of government regulation, “most businesses, even restaurants and other service sector companies, already pay above the minimum wage anyway… You can’t get a dishwasher for minimum wage.”

Action Items

1. Consider your income and pay increases. Do you create the level of value that you agreed upon with your employer when they offered you your current pay level?
   Ask yourself if you feel “entitled” to your income. Consider how you can eliminate the destructive desire for a “free ride” from your mentality. Commit an honest day’s work for an honest day’s pay.
2. If you feel you need greater pay, determine what you can do to create greater value for your employer.
3. Make a list of ways in which you can increase your human life value.
4. If you employ others, consider whether the wages you pay are commensurate with the value they create for you.

MRFC Principles: (7, 11)

Sources

Ellen Simon and Anne D’Innocenzio, Federal minimum wage rises to $6.55 today, Associated Press, July 24, 2008.
Fair Minimum Wage Act of 2007, Wikipedia.com

(Matthew Pilling is a member of the FreeCapitalist movement known as the Canadian Capitalist. Despite his time in the Great White North, Matthew loves America and all that it stands for. He lives with his wife and two children in Taylorsville and works in finance.)