The new, new way to raise the minimum wage
The line we're being sold by the left is that the stimulus payments are to help people in need during this COVID economic "crisis." Apparently, not unlike Little Bo Peep, they've all lost their jobs and don't know where to find them. This is in spite of data recently released by the Bureau of Labor Statistics showing that while roughly 10 million folks are unemployed, there are 8 million job openings going unfilled. We'll get back to this disconnect in a bit.
Meanwhile, on the other side of the moon, conspiracy theorists think the stimulus payments are all about making folks dependent on the government. Also, according to the theoretical "master plan," this also makes everyone vote for Democrats in the future because Democrats provided the stimulus. Maybe, but this ignores the two previous stimulus payments passed by Republicans and pushed by President Trump.
So what's really going here? Perhaps the most recent stimulus payment has little or nothing to do with either helping people in hard times or making people government-dependent. Maybe it's all about the minimum wage. The last few years have witnessed a major push to raise the minimum wage from its current level to $15 per hour. This push, while successful in a few states, has gone nowhere on the federal level. More than a few Democrats don't support it and most recently voted against it in the Senate.
Well, here's the new, new plan. Pay people with stimulus money an amount below minimum wage not to work, but enough to survive. Like a teenager given the choice to do household chores for $7 per hour or $5 per hour to do nothing, we all know their decision. That's because the pay for mowing the lawn or washing the car is below what economists call a "reservation wage." It's not worth the extra two bucks an hour to quit playing video games. But what if the pay for chores were raised to $10 per hour, or even more? Boom! The lawn is perfectly trimmed, and the car is shiny like new.
As reported recently in the Wall Street Journal, McDonald's and Amazon publicly lamented that they can't find workers to fill thousands of open jobs and announced increases in their starting hourly wages: $15 per hour in Big Mac Land and $17 in the depths of the Amazon. They're trying to identify the reservation wage needed to get the stimulus-paid sofa spuds off the couch and back to making fries and filling boxes.
This "plan" is brilliant and devious at the same time. It essentially uses the free market to do what Congress couldn't: raise the minimum wage for basic unskilled labor. There's no law, other than an economic one, making employers raise starting wages. The choice given to earn less by not working or marginally more by breaking a sweat is an easy one, but the labor market on its own is identifying an even higher wage to get folks to put in the hours. And the left can crow that it was about time corporate America realized the error of its starvation wage past and that the market has spoken.
But is this really a free-market decision? Of course not. It's derived. Without the stimulus payment, the choice becomes mow the lawn for seven bucks or get paid nothing to play video games. Now our not so hypothetical teenager fires up the Snapper and breaks out the Turtle Wax. The fact that companies are "freely" raising their entry-level wages is not because of an open and fair labor market; it's because they have to compete against the government.
Imagine a year from now and the return to a "normal" economy. Next, imagine the outcry if McDonald's announces that it is lowering wages by a buck or two. It would be attacked on every major network, vilified in every major publication. There would be employee walk-outs, protesters in the street with crudely written misspelled signs, and hand-wringing by the left. Good luck with that, you Hamburglars!
When all the dust settles, this is what's going to happen. Large companies, firms that need to fill a lot of open jobs, will all raise wages. Smaller businesses will be forced to raise theirs, too, because they have to compete with the likes of Amazon. And once everybody is getting $15 per hour or more in the "free" market, the legal minimum wage will be raised to support it because it's what "everybody already makes." It's the new, new minimum wage.
Kevin Cochrane teaches economics at Colorado Mesa University and formerly was a senior national banking executive.
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