Tuesday, July 24, 2007

Chasing our Tails – Another Minimum Wage Increase

The minimum wage increased today, the first in a coming stream of wage increases that will last until 2009. Minimum wage earners today will see their hourly pay rise from $5.15 to $5.85 per hour, a 13.6% increase.


The whole concept of a minimum wage is interesting, but devastating. It is a perfect example of well-meaning, short-sighted liberalism at its best. Since its inception (at $0.25 per hour) in 1938, the federal minimum wage requirement has been ballooning to what it will become on January 1st, 2009, $7.25 per hour.


First, a math lesson.

The average inflation rate in the United States is somewhere around 3% per annum. So, a reasonable person would expect that, on average, the minimum wage would increase at an annualized 3% per year. Below are my calculations showing what the minimum wage should be, assuming a 3% annual growth rate. As it shows, the January 1st, 2009 amount should be $2.04.


Let’s compare that to the Democrat’s January 1st, 2009 figure of $7.25. $7.25 is more than 3 and a half times the predicted $2.04, and, using the wonders of Microsoft Excel, it takes on an annual growth of almost 5%, which is almost twice as high as the average inflation rate.
So, why would the liberals want to grow wages faster than inflation?


TO BUY VOTES.


Now, an economics lesson.

As we have previously determined, a 13.6% increase in the minimum wage today will ultimately mean a similar jump in other wage-related products and services. Why? Well, here’s where the short-sighted liberals get confused. You see, they think that companies can just afford to absorb a 13.6% increase in their costs.
A 13.6% increase in costs is something almost no company can afford.
This is especially true of small businesses. Take your local movie theater. Most movie theaters operate on paper-thin margins, as the costs of doing business continue to rise. Movies are always more and more expensive to produce (and thus, to buy and show in your theater). Energy, building, and maintenance costs are always on the rise. Even the price of popcorn has shot up recently due to the increased ethanol demands (article regarding environmental nuts to come later). And now, one of their largest costs, the paychecks of their ticket counter operators, concession stand workers, and theater and bathroom cleaners has jumped by an astonishing 13.6%.


Your theater now has 2 choices: Lay off employees, or raise the ticket price. As you may have noticed, most theaters are already operating with minimal manpower. My local theater doesn’t even have anyone working at the ticket booths. You have to purchase your movie ticket from the concession stands, and no one checks your tickets as you enter the theater. That said, my local theater probably can’t lay any more workers off. So ticket prices will jump.
If your average movie ticket, which costs $9 today, were to increase by 13.6%, your movie tickets tomorrow will cost $10.25.


And here’s the real kicker. As prices adjust to wage increases, and products and services composed of wage-related costs become more expensive, they essentially cost the same to minimum wage earners – and we’re left chasing our tails once again.

3.00% Annual Increase

1938 $ 0.25
1939 $ 0.26
1940 $ 0.27
1941 $ 0.27
1942 $ 0.28
1943 $ 0.29
1944 $ 0.30
1945 $ 0.31
1946 $ 0.32
1947 $ 0.33
1948 $ 0.34
1949 $ 0.35
1950 $ 0.36
1951 $ 0.37
1952 $ 0.38
1953 $ 0.39
1954 $ 0.40
1955 $ 0.41
1956 $ 0.43
1957 $ 0.44
1958 $ 0.45
1959 $ 0.47
1960 $ 0.48
1961 $ 0.49
1962 $ 0.51
1963 $ 0.52
1964 $ 0.54
1965 $ 0.56
1966 $ 0.57
1967 $ 0.59
1968 $ 0.61
1969 $ 0.63
1970 $ 0.64
1971 $ 0.66
1972 $ 0.68
1973 $ 0.70
1974 $ 0.72
1975 $ 0.75
1976 $ 0.77
1977 $ 0.79
1978 $ 0.82
1979 $ 0.84
1980 $ 0.87
1981 $ 0.89
1982 $ 0.92
1983 $ 0.95
1984 $ 0.97
1985 $ 1.00
1986 $ 1.03
1987 $ 1.06
1988 $ 1.10
1989 $ 1.13
1990 $ 1.16
1991 $ 1.20
1992 $ 1.23
1993 $ 1.27
1994 $ 1.31
1995 $ 1.35
1996 $ 1.39
1997 $ 1.43
1998 $ 1.47
1999 $ 1.52
2000 $ 1.56
2001 $ 1.61
2002 $ 1.66
2003 $ 1.71
2004 $ 1.76
2005 $ 1.81
2006 $ 1.87
2007 $ 1.92
2008 $ 1.98
2009 $ 2.04