Big New Minimum Wages Mask Cruelty as Sympathy

By Daily Editorials

December 3, 2019 5 min read

"Black Friday" sounds dire but is actually a cause for celebration. For most of the year, retail stores are fortunate just to break even. But the beginning of the holiday shopping season finally brings profit margins wide enough to carry them out of the red and into the black.

The day after Thanksgiving and the coming days before Christmas thus remind us of the importance of seasonal spending on our economy. They also provide a constant warning that the success of the retail industry depends on operating as efficiently as possible to keep up employment and production.

Yet just as the holiday season spikes job creation from brick-and-mortar department stores to warehouses for online retailers, Christmas carols also sound the tune of socialist sad-sacks demanding that state and city governments pass ordinances raising the minimum wage to $15 — no, $20! — per hour.

Companies such as Costco and Amazon are probably even wise to pay their workers a minimum of $15 per hour voluntarily. That they do so, and that only 2.3% of all jobs in the United States pay the actual minimum wage, is evidence that employers generally wouldn't and couldn't pay people less if there were no minimum wage at all.

But not all businesses are created equal. Department stores such as Macy's have seen their profit margins slump asymptotically, and others, such as Sears, have gone back into the red seemingly for good. Given the mounting cost of deliveries and online competition for shoppers, there exist many stores, especially small businesses, that could not keep their doors open if they had to pay workers significantly more than our current federal minimum wage of $7.25.

For struggling stores and small businesses, holiday sales are a godsend. Even more welcome are the hundreds of thousands of jobs created. Retailers created more than 700,000 jobs during the holiday season last year. That includes not just hundreds of thousands from profitable juggernauts such as Target but also 80,000 from Macy's and 90,000 from Kohl's. The labor market has continued to tighten, meaning companies that can afford higher wages will be forced by the market to provide them or else lose competent, honest and reliable workers.

Holiday-season workers make up a little less than one-fifth of total retail sales workers, whose median wage was $11.70 per hour last year. With companies such as Piaggio now selling retail robots, automation is threatening the livelihoods of many retail workers. This will get worse if the government artificially increases the cost of hiring them with a $15 or $20 minimum wage, plus the additional employer payroll tax that comes with it. This is especially true given today's low inflation. Put it all together, and a sudden doubling of the minimum wage would make the option of outsourcing such jobs to robots all the more attractive.

Businesses could instead simply close or stop hiring workers (especially younger workers) who do not produce $15-$20 of value each hour. The workers worst hit would be those trying to pay for school or at the start of their careers.

Contrary to fears about robots and immigrants taking jobs, automation will create millions of skilled and semi-skilled jobs in coming years. But lower-income and younger workers in retail and manufacturing have the most to lose in the process of creative economic destruction. Take away low-wage jobs and you throw them out of work.

If your aim is to help low-income workers, there are much better ways to do it than to crank up the minimum wage. Oren Cass has argued for an expansion of earned income tax credits. Andrew Yang argues for a need-blind universal basic income. Whatever the merits of these proposals, at least neither one will mess up opportunities for willing, low-skilled workers.

That's what matters most. Although a minimum wage increase sounds compassionate, making workers too expensive for their jobs is anything but. It is cruelty masked as sympathy.


Photo credit: gonghuimin468 at Pixabay

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