For Restoration…

Restoration of Values

Meaning and Implications for Catholics of Minimum Wage

 

A debate on minimum wage flares up periodically, as it does at this time. Much of the debate, however, is based on ignorance and misinformation. The compassionate argument reduces itself to the question: How could a family live on a minimum wage? The answer is, it does not. Thus, let’s consider a Mr. Smith with wife and two children, employed at $7.50/hr. If he works 50 weeks per year, he makes $15000 per year. Let’s say he earns $100 annually in interest (the paychecks are deposited in a bank).

Assuming the family pays for shelter (rent, heat, electricity, gas, water, telephone) a low $500 per month, it receives $405.35 of food stamps per month ($4864.20 per year).[1] If the shelter costs are higher, the aid is greater. In April, Mr. Smith files an income tax return and receives an earned income credit (EITC). payment of $5370,[2] bringing the family income to $25,334.20 per year. Additionally, the children receive free lunches at school, without any reduction of their food stamp benefits,[3] and they have free medical care in all states. Thus, half of the family’s income comes from charity, which should be the business of the church, rather than result from forcible confiscation and redistribution by the government.

The question arises: Why doesn’t Mrs. Smith work, say, four hours a day, when children are in school? Usually, because the added income would reduce the family’s benefits and it is not worthwhile to disturb herself for an effective pay of four dollars per hour or so. This is another negative moral effect of the scheme.

The poor family argument is in fact a red herring. Only a small fraction of minimum wage earners support a family. In addition, not all workers are forced into low paying jobs. For example, in my first years in the U.S. I found out that my experience did not matter much on the market: “Educated in Bucharest? Is that in Bulgaria, or where?” So, one day I went to a world-known professor at Princeton and offered my services as a postdoctoral investigator for a symbolic $1 per month. He had seen, however, some publications from my PhD research and hired me at 60% of the already low regular pay. As I was putting in 50 hours/week, my hourly pay was definitely below the minimum wage. Shortly thereafter, he hired my wife too, at 50%. One year later I was an instructor in the department and two years later both my wife and I had jobs with major companies.

In the same period, a physician, refugee from Romania, found work cutting grass in a cemetery at minimum wage, until he passed the examination to practice in NY.

Whereas those were personal examples, a minimum wage job is almost generally a first step for people with no experience, but with advancement in mind.

An elementary fact missed by partisans of dictating wages is that a salary is tied to the value produced by the employee through his work and that people are paid a low salary because that’s their output value. Nobody ever thought that farmers should sell their produce on the market at prices determined by the farmers’ family size. If the output value of low-paid workers surpassed their remuneration, they could refuse working for those wages and employers would have to accommodate them. In reality, if minimum-wage employees should quit, others would step in to take their jobs, knowing that their work can’t produce enough value for a higher salary. An increase in the minimum wage hides within the “salary” a part of the charity received and demeans the dignity of labor. It is in fact a hidden increase in public assistance payments and in the corporate tax. Having cooked the books on two lines, the government then makes uninformed people believe that it is all about protecting workers from “corporate greed.”

Negative consequences of political, rather than economical, control of salaries are many. Thus, there was a time when all office buildings had elevator attendants, mostly youngsters at their first job. Working, they learned to be on time, to be responsible, to know the layout of the building, to be neat, to be polite. Their cost to the employers was just a little cheaper than the operation, maintenance, and depreciation of an automated system. After a few years most went on to better jobs, sometimes in the same building. When the mandated minimum wage made the automated system cheaper, they were all on the streets. (It seems, though, that during the transition there was a bonanza for elevator manufacturers.)[4]

Some people argue that employers should have kept those workers at a loss. They blame “corporate greed.” for the bad consequences. “Corporate greed” is nonsense, just like “corporate gluttony” or “corporate lust,” or even “corporate charity.” Corporations can’t go to Heaven. They should make profits by legal means. In that way they help consumers, their employees (even those in the lowest positions are owners of company stock), and also retired workers whose pension funds are invested, etc. Companies that don’t make profits go bankrupt and all the jobs are lost.

Some minimum wage earners don’t even work for corporations. I witnessed how a minimum wage increase during the Clinton presidency robbed some students of the opportunity of doing (actually learning) research on small sums that professors had as remnants from research grants. Suddenly, the hourly paid student research helpers became unaffordable. It has been noted that the minimum wage increases also reduce the number of department-paid campus jobs.[5]

As shown by the examples given above, the main losers from minimum wage hikes are the least qualified and experienced workers, whom the move is claimed to help. Thus, youth unemployment, which was below 15% before the 2007 minimum wage hike, soared to 27% by October 2009, and is still very high.[6] The presence of a parent working steadily, however, helps educate a youngster for his first job. The societal unraveling of the family removes that mitigating factor. Counteracting that plague should be a first priority of the church. As explained by D. P. Moynihan (later a US senator for the Democratic Party), the government welfare programs have had a disastrous effect on black families.[7] Unsurprisingly, the unemployment for young blacks is higher than 35%.[8]

A salary hike does not always lead to the termination of all minimum wage earners. Also, the hike never affects only the minimum wage. For instance, if in the company the salary next to the lowest is $12/hr, those workers make 60% more than ‘Mr. Smith,’ a ratio determined by the relative value of their output. After Mr. Smith gets a raise from $7.50 to $10/hr, the pay ratio shrinks to 1.2, but the output value ratio is still 1.6, a situation unfair and unacceptable to the more productive workers, which demand, and receive, a raise as well. The move is repeated upwards the salary scale. As a matter of fact, labor unions routinely set the salaries in the collective bargaining at certain ratios to the legal minimum wage. Naturally, the unions are champions of raising the latter. In turn, politicians who depend upon union support, do their best to fulfil that request.

All these extra costs imposed on the companies are distributed in the company’s finances; a major part must go into higher prices for the products sold. The people with below average income suffer the most. In this race between prices and salaries, the only beneficiary is the government, which confiscates and redistributes, thus increasing its power. Another consequence is that more and more companies are pushed outside worldwide competition. Their production moves to China, Thailand, or some other place..

Most important, however, the replacement of Christian mercy for the poor under the auspices of the Church by the forced wealth transfer ordered by the secular government is destructive for the soul and marginalizes the Church in the society.

[1] http://www.fns.usda.gov/snap/eligibility

[2] www. irs.gov

[3] http://www.massresources.org/school-meals-eligibility.html#foodstamps

[4] http://www.gold-eagle.com/article/minimum-wages

[5] http://dailyemerald.com/2013/05/13/raising-minimum-wage-may-limit-the-amount-of-campus-jobs-available/

[6] http://www.foxbusiness.com/economy/2013/02/13/higher-minimum-wage-higher-unemployment/

[7] http://en.wikipedia.org/wiki/The_Negro_Family:_The_Case_For_National_Action

[8] http://cnsnews.com/news/article/ali-meyer/unemployment-among-black-youth-393-higher-national-rate

Dan Fãrcaºiu

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