Raising minimum wage comes with costs for economy

Sen. Elizabeth Warren, D-Mass., made national headlines when she testified recently before the U.S. Senate Committee on Health, Education, Labor and Pensions about the need to raise the federal hourly minimum wage above its current level of $7.25.

After all, it’s been fixed at $7.25 since 2009 and certainly is not a livable wage.

But does a minimum wage of any kind create a reasonable basis for economic growth — and, more specifically, job growth? Somehow the “livable wage” concept has become part and parcel to the debate, when it seems to me the better description should be more in line with “entry-level wage.”

An entry-level wage establishes the expectation that an employee is learning, growing — and, over time, adding greater value to an enterprise. As employees grow into their positions, they’re rewarded with higher wages and better benefits. To impose a higher minimum wage that might hurt a business’ chance of success will ultimately lead the owner to hire fewer workers.

In her testimony, Warren suggested that the minimum wage, if it were tied to growth in worker productivity dating back to 1960, should be roughly $22 per hour. Imagine how many new jobs this would bring to a fragile and sputtering economy.

Warren later clarified that she wasn’t advocating $22 as the new level but simply that the time for revisiting the federal standard is now. The administration is working hard to phase in a federal minimum wage closer to $10 in the coming years.

Admittedly, this debate won’t have much impact for businesses here in our state, since Washington has the highest minimum wage in the nation: $9.19 per hour. But in principle, it still requires our attention. Washington’s minimum wage is tied to the rate of inflation, which provides at least some measure of predictability and control for a business owner.

Warren’s observation is proof that capitalism is working as it should. Productivity must increase as businesses in a healthy and competitive environment find better ways to produce products and implement greater efficiencies. Yes, this will increase profits. It will also promote job growth and economic expansion.

Greater worker productivity in a competitive environment also benefits consumers as prices go down with these newfound efficiencies. Warren suggests that the windfall from worker productivity has lined the pockets of business owners, which I believe is an exaggerated and unfair charge.

Workers should earn higher wages as they increase their competency and deliver value to the enterprise. And if capitalism is working well, employees who feel they deserve better reward for their hard work will simply look for work elsewhere. Or perhaps they’ll go back to school to sharpen their skills and enhance their personal market value. This, too, is capitalism in action; if employers are smart, they will treat workers well.

Said an Everett businessman and CEO of Terra Staffing Group, Steve Neighbors: “When considering raising the minimum wage, one must consider the entire spectrum of compensation and benefits as the cost of labor. When labor costs go up, so does the cost of doing business. Unless the business can easily raise their prices to consumers, to stay in business they must control their costs.

“If the government-controlled minimum wage goes up, the only way to cut labor costs is to reduce head count or reduce the hours worked or lower benefits. It is a simple matter of arithmetic, not the result of unsympathetic, mean-spirited employers,” Neighbors said.

If our government truly believes that there is a minimum-wage standard to be mandated at the federal or state level, then we begin to manipulate forces that ultimately drive companies to examine the cost of doing business here as compared to offshore options.

The last time the federal minimum wage was adjusted, then-President George W. Bush signed into law an incremental increase from $5.15 per hour in 2007 to the current $7.25, starting in 2009.

I’m curious to know how many of the jobs lost during the great recession in the U.S. might be attributed in some way with the 41 percent jump in minimum wage.

Neighbors noted, “When considering any policy, lawmakers must look past what feels good to consider the unintended consequences of their decisions. In the case of minimum wage, their policies tend to hurt those who they are trying to help most.”

With the economy still in a fragile state and many new costly hurdles for small business owners to clear, introducing another shock in a short time only makes things worse. I fear this debate fuels uncertainty, fostering tremendous frustration and keeping many entrepreneurs on the sidelines.

Juergen Kneifel is a senior associate faculty member in the Everett Community College business program. Please send your comments to entrepreneurship@everettcc.edu.

Correction: Because of an editing error, an earlier version of this column incorrectly said that Sen. Elizabeth Warren had testified about the need to raise the minimum wage to $7.25 an hour. This was incorrect. Warren was testifying about the need to raise the minimum wage above its current level of $7.25 an hour.

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