Chicago Columnist Illinois Leader Entrepreneur Political Analyst Business Advisor Illinois Review

Thursday, August 19, 2004

By Ralf Seiffe

The uneventful transfers of sovereignty to Iraq, punctuated by a perp-walking Saddam Hussein, are positive blossoms of the Bush Doctrine.

The economy is on a zoom that probably won’t peak before election time. Gasoline prices are coming down as oil markets predict tranquility - or at least the Middle East equivalent.

These are facts that will soon embed into the consciousness of the politically under-engaged and as they do, John Kerry and the Democrats will lose most of the ammunition with which they planned to ambush the president between now and November.

Bereft of any new, salable ideas with which to burden their fellow citizens, these meddlers will seek votes by recycling the discredited ideas that define why they are the socialist branch of our two-party system.

One of these hoary ideas is to tax labor in the form of an involuntary price hike.

If elected, Democrats promise to prove their compassion for the downtrodden by increasing the minimum wage. They observe that the dollar is so diminished that it takes more than $8 per hour to command the same purchasing power that a $1.60 did when the minimum wage peaked in real terms back in 1968.

Further, they tell us minimum wage workers are unable to rise to better status, and these workers face a lifetime of wage victimization. The only remedy must be a rise to $8 from the current $5.15.

There’s a lot of controversy about this.

Minimum wage opponents and proponents usually frame their debates in terms of entry-level jobs.

Opponents cite the laws of supply and demand to support their position, arguing that any increase in the minimum wage results in a loss of entry-level jobs.

Proponents say there is no connection between the minimum wage and the supply of gateway jobs, pointing to rickety studies of Philadelphia area restaurants some years ago.

Both sides believe their positions with theological certainty so it’s unlikely this argument will end anytime soon.

This may be the wrong argument, however. According to one of the Democrat support groups, the Economic Policy Institute, only 6.8 million out of more than 120 million Americans working earn the minimum wage.

Of those, more than two million are youths and not likely to be a family’s primary wage earner. That leaves only 4 percent of all workers who may support families find themselves earning the minimum wage.

Even these workers are upwardly mobile; few workers stay at minimum wage for an extended time and many receive gratuities.

Nevertheless, increasing the minimum wages is a popular issue precisely because it is not about the downtrodden.

The real purpose of the minimum wage is to create the baseline for tens of millions of hourly workers. Union strategists as well as unrepresented employees use the minimum as the starting point with which to structure their wage demands; as the minimum rises, all wages rise hydraulically. This phenomenon helps explain why the AFL-CIO and its allies devote so much effort analyzing and advocating for the minimum wage.

These organizations have brought pressure to bear on the Congress to increase the minimum wage over 70 years. Rather than working to increase productivity, minimum wage advocates have used the government’s coercive power to structure the labor market to their liking.

The result is that the differential between the minimum wage and higher-paid groups has increased both in nominal and real terms, if the labor web sites are credible.

Politicians may fight over entry-level jobs but what effect does the minimum wage have on semi-skilled, manufacturing jobs?

Consider the minimum wage hamburger flipper and an assembler in an automotive supply company. The hamburger flipper’s job is to make you a meal exactly when you want it and where you want it. This is work that cannot be done in China or Mexico; in fact a visit to almost any fast food joint will convince you that we import Mexicans to do those jobs.

In contrast, the parts assembler, who makes twice or three times the hamburger flipper’s salary, creates a valuable inventory. Unlike the hamburger flipper, these “good” jobs can be exported to anywhere the labor cost savings exceed the additional shipping and management costs of the foreign operation. The hamburger flipper’s job is actually safer than the factory worker’s job.

Certainly there are a number of other causes for the migration of jobs to foreign countries, but one big reason is labor cost. The minimum wage’s constant, upward pressure has forced all labor costs higher. This helps explain why many “good jobs” that support the middle class have vanished from the American economy and why there are so many hamburger flipper jobs.

If Democrats replace Iraq and the economy with the minimum wage as a campaign issue, Republicans should show that the beneficiaries of an increased minimum wage are not powerless Americans or even the core Democrat constituencies.

The real beneficiaries are the semi-skilled workers in lower wage, foreign countries. Proof can be found in any WAL-MART, K-Mart or Sears; where once there were ILGW or UAW tags, the labels now say “Made In China”

This unintended consequence of the minimum wage is exactly the opposite of what the AFL-CIO - or any other American - would want.

If the Democrats want to protect American semi-skilled manufacturing jobs, they should not raise the minimum wage, they should raze it.

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Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois and is a political analyst and columnist for the Illinois Leader.