Saturday, July 5, 2014

The Myth? Raising Minimum Wages Hampers Job Growth. The Reality? Baloney.

     An initiated measure to raise minimum wages from $7.25 to $8.50 an hour (with built-in adjustments for inflation) in South Dakota will be on November's ballot.  Leading the opposition to it, SD Governor Dennis Daugaard last year said, "this issue should be based on economics, not politics.  There needs to be an analysis of how many jobs would be lost." This is an amazing statement on two fronts, actually.  In the first place, I don't know how Daugaard can make the presumption that jobs would be lost if the minimum wage increases. The facts don't support his view.  Which brings us to the second front:  What the facts do support is Daugaard's belief that the decision should be made based on its economic consequences.  I couldn't agree more with the Governor that politics should take a back seat to economics on this one.
     And when it comes to economics, I'd say the most pertinent facts that we can rely on are those that have been gleaned this year from studies of states that have raised their minimum wage in 2014.  Thirteen of them have done so and the numbers so far indicate one thing:  states that have raised their minimum wages this year are experiencing faster job growth than states that haven't.  Economists at Goldman Sachs produced a study cited by The Center For Economic Policy Research that concludes "2014 job creation is faster in states that raised the minimum wage."  Granted, the study doesn't necessarily disprove the claim that some jobs could be lost by raising the minimum wage, but what it does confirm is the far more profound impact of rising wages on the overall economy.  By kicking wages higher from the base upward, more money is put into the hands of consumers, whose overall spending has a positive effect on economic growth.  Job losses created by rising wages in some industries are more than offset by better job creation numbers as consumer spending is increased by better overall wages.
     Seems to me that this is the point that is consistently missed here in South Dakota, which is perpetually on the low end of wage scales, both nationally and regionally. Recent Bureau of Labor Statistics studies confirm as much. Governor Daugaard's much-ballyhooed and recently completed "workforce summits" at various meeting points around the state should (note I said "should") produce a "stand-out" conclusion:  the best way to address South Dakota's chronic labor shortage is to pay competitive wages.  What better way of showing the rest of the country that South Dakota is determined to improve the lot of its workers than by making a clear commitment to raising the minimum wage and insuring annual cost-of-living increases as part of that commitment?  This is what the coming November initiative would accomplish if it passes.
     And if Governor Daugaard is sincere in his belief that the decision should be an economic, not a political one, then he need only study the effects of higher minimum wages on those states that have them.  That means Daugaard should be supporting the initiative.  The facts speak for themselves.  So what about it, Governor Daugaard?  Do we make this an economic or a political decision?

Addendum (added 7/7):  More on this from a UC Berkeley-trained Economist, aka my daughter Emily: "It is my belief that raising the minimum wage can actually increase employment by coaxing marginal workers back into the job market. Controlled experiments are impossible in an actual economy, but anecdotal evidence is strong in this regard. Microeconomics can easily demonstrate this if you assume that there is a "monopsony" in labor markets (many sellers -aka workers; few buyers - aka employers)."  Emily adds this link
   
   

5 comments:

  1. Spread that wealth, John... and spread the word! Raising the minimum wage is economic stimulus that doesn't add a penny to the state budget.

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  2. I have often wondered why conservatives here and across the country continue to fight against people making a decent wage?

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    1. Probably, Tim, because their traditional supporters in the business community oppose it. Here in South Dakota the Chamber of Commerce and Industry is on the record as being against the coming initiative. As a member of the SD Retail Federation (not sure if we've taken a position, I'll check) I think it's a good thing because higher wages translate into more retail spending. I know there are loads of contradictory studies on this, which is why I say the proof is in the pudding, and this latest Goldman Sachs summation, which neatly compares states that have raised minimum wages this year with those that haven't, is pretty clear evidence that an increase has beneficial economic effects. I'd rather go with existential studies than theoretical analyses, and old as I am, I've lived through many minimum wage increases over the decades and can't recall a time when the effects were anything but good for the economy. This is why I challenge Governor Daugaard to follow through on his commitment to decide the issue on economic, not political grounds.

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  3. Citibank came to Sioux Falls at a very opportune time for SF and SD. John Morrell was the best paying labor job in the city and state. It was also the largest employer in SF with a workforce of over 3,000. Citi quickly moved into second with SIoux Valley Hospital (now Sanford) in third place.

    I say opportune, because it was also at a time when John Morrell cut their union employees wages by nearly 25%, (hard to imagine when considering the cut that teachers took a couple of years ago). I was no longer working in sales for John Morrell, but I remember hearing business people being happy about those wage cuts because now they would not have to raise their employees wages. I asked them if they realized what they were saying. Those folks had a mortgage to pay, probably a car payment and of course insurance on both as well as taxes to pay. So where did they think that cut in pay would show up? Why of course at the other businesses in town because all of the disposable income was already spoken for, their would be none left for any extras.

    I have been retired for over ten years and my two small pensions, (which of course don't increase) and my social securtiy (which does) figure out to just under 12.25 an hour based on a 2080 hour work year. As a senior citizen, I get perks that younger folks don't get. I cannot even begin to imagine working for the paltry wage that SD is talking about raising it to if it passes.

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    1. The proposed new level is paltry indeed, Lanny, but I believe there's a ripple effect that's created when minimum wages go up, so wages across will probably follow suit if the November initiative passes. The new $8.50 standard will probably apply to just a few thousand people in the state, but many, many more will see increases in their wages to follow suit.

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