The Rising Minimum Wage Debate

April 8, 2021

By Trish Regan

As another winter storm barreled toward my New England town last month, I rushed to my local grocery store to load up on last-minute essentials.

There’s something about the threat of a storm that always has me stocking up. And I’m not the only one… It seemed my entire town had made its pilgrimage to our big-box grocery chain that day, with everyone’s carts loaded to the brim.

As I searched for an open checkout lane, I was struck by something…

There was no one even working at the checkout counters. No cashiers, no baggers – almost every single line was a self-checkout.

This labor-less reality is relatively new. Granted, I don’t always shop at this particular store, but I’d been there a month or two earlier and at that time, there were only a handful of self-checkout lines.

That day, there were only a handful of fully staffed checkout lanes.

What happened?

If the Democrats get their way, automation at everything from grocery stores to McDonald’s will be the future sooner than you think.

The threat of a higher minimum wage happened… And, if the Democrats get their way, automation at everything from grocery stores to McDonald’s will be the future sooner than you think.

I scanned my items, bagged my groceries, and off I went just as the snow flurries began coming down.

Hiking the Minimum Wage Means Lost Jobs

Driving home, I couldn’t stop thinking about it… This was a store that had cut down significantly on staff levels in just a matter of months.

This is our future…

The Left has been demanding an increase in minimum wage. If our federal government passes an increase in this country’s minimum wage, this transition to technology will continue at an even faster clip. Hey, it’s a good deal for the grocery companies – but what about the people who need those jobs?

Instead of having the usual 25 to 30-plus workers at the various checkout lanes, this store had about 10.

Why pay workers $15 an hour when customers can scan their groceries themselves?

The non-partisan Congressional Budget Office predicts that 1.4 million jobs will be lost by 2025 if we raise the minimum wage to $15 dollar an hour.

And those workers will have none other than those so-called “champions of the working class” socialists like Bernie Sanders and Alexandria Ocasio-Cortez (AOC) to thank for the job losses.

The minimum-wage hike is not happening… yet.

The passage of a higher minimum wage looks to be dead on arrival, thanks to the Senate Parliamentarian Elizabeth MacDonough’s announcement that a minimum-wage increase didn’t fall within the budget conciliation rules, a pronouncement met with fury.

Rep. Ilhan Omar is demanding MacDonough be fired or ignored… while AOC insists it’s shameful that we’re even having this discussion.

“It is utterly embarrassing that ‘pay people enough to live’ is a stance that’s even up for debate,” wrote AOC on Twitter earlier this month. “Override the parliamentarian and raise the wage.”

The Biden administration, to its credit, has indicated it is not willing to override MacDonough, a non-partisan player who is simply trying to enforce the existing legislative rules.

But AOC argues that McDonald’s workers in Denmark are paid $22 an hour and receive six weeks of paid vacation a year. Thus, “$15 per hour,” she tweets, “is a deep compromise – a big one, considering the phase in.” (She’s referring to the intention to phase in the wage increase over time.)

But here’s the thing… We’re not the perfect little country of Denmark, flush with oil reserves and an entire population roughly 30% less than that of New York City’s.

We’re the United States of America. We’re a massive country, with a diverse, hardworking, brilliant, and entrepreneurial population – and we need opportunities for upward mobility and yes, low-paying jobs are part of that.

We’re the United States of America. We’re a massive country, with a diverse, hardworking, brilliant, and entrepreneurial population – and we need opportunities for upward mobility and yes, low-paying jobs are part of that.

The federal minimum wage first came to be in 1938 under the Fair Labor Standards Act, the federal government’s initial instance creating a baseline for workers’ pay. And nearly a century ago, America’s minimum wage was only 25 cents an hour.

Yes, imagine working for quarters.

The minimum wage has increased 22 times since then, climbing to today’s $7.25 rate. And though raising the minimum wage would undoubtedly help some Americans, it’s crucial to note that its potential effects vary by geography and relative living standards.

Just like so much of our pandemic response has revealed the apparent tensions between state and federal policies, this minimum-wage argument is no different.

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States like California and New York already have a minimum wage floating around $15, whereas Alabama and Kentucky’s state minimum wage matches the current federal rate. More than doubling the minimum for these latter two states would create shockwaves for their small businesses since the cost of living there is already low.

We must consider this with respect to individual states’ economic realities before sweeping federal legislation upends small business owners’ lives in states that happen to have lower costs of living.

Entering the Workforce

I got my first official job when I was 12. That summer, I worked 40 hours a week as a swimming and sailing instructor at a local community center up in Maine… 7 a.m. to 4 p.m., Monday through Friday.

I made $25 a week. Heck, that wasn’t even minimum wage – even then!

In retrospect, I’m not even sure how the organization managed that unless I was considered some kind of volunteer (probably).

Anyway, the point is… I was so proud to have that job and earn that $25 check every Friday. I remember how I’d pick up my check at work, stash it in my pocket, and ride my bike all the way into town so I could deposit the money in my passbook savings account every week.

That job taught me some basics… including the reality of just having a job, which entailed being there on time before my shift started early in the morning, working with others, and having responsibilities. All of those facets are crucial for a young person to learn.

In fact, many minimum-wage jobs are where young folks get into the workforce for the first time.

According to the government’s Bureau of Labor statistics, the majority of minimum-wage workers tend to be young. Though workers under the age of 25 represented only about one-fifth of hourly paid workers in 2017 (the most recent data available), they made up roughly half of those American workers earning minimum wage or less.

Now, $7.25 is not enough to live on… AOC is correct on that. However, many are not really living on that wage. Many people earning $7.25 are young people living at home. Meanwhile, bartenders and wait staff earning $2.13 an hour are not depending on that income for their wage, instead subsisting on tips.

Requiring a $15 minimum will likely result in fewer young people getting that vital first-time job opportunity, and could cause numerous restaurants and bars, which are already struggling as a result of the pandemic, to shut their doors.

Requiring a $15 minimum will likely result in fewer young people getting that vital first-time job opportunity, and could cause numerous restaurants and bars, which are already struggling as a result of the pandemic, to shut their doors.

A recent piece in the Wall Street Journal articulated this issue perfectly. Betsy LeRoy, the owner of a local pizza shop called “Pizza by Elizabeths” in the Wilmington, Delaware area wrote that she is a big Biden fan and a friend and supporter of his. Over the years, he’s been a frequent and supportive customer at her restaurant, coming to her establishment two to three times a week.

But there’s no way, she writes, that her restaurant, or any other for that matter, can survive if they move the minimum wage for her servers and bartenders from $2.23 per hour in Delaware to the $15 proposed by Democrats. It’s more than a 400% increase, she writes, “which would be a death knell for our industry.”

“Even in good times,” she continues, “our profit margins were low. Today our profits are nonexistent, as is our ability to increase prices… Were the tipped wage to rise more than 400%, our restaurant would have two options: We will either close, or we could adopt a ‘service charge’ that would leave our tipped workers with less take-home pay.” That’s because, LeRoy says tipped workers in her state typically earn $20 to $30 an hour, more than the $15 minimum they’d be left with under the government’s proposal.

Now, capitalism is not perfect… But the reality is, capitalism has lifted more people out of poverty than any other system in the world. That’s because capitalism recognizes and respects the power of the individual and his or her ability to do what’s best for them. We do not need a Nanny State telling us how much we are allowed to earn, how much we should pay our workers… We should decide through a negotiation between capital and labor what we’re willing to work for.

In other words, a capitalist system assumes that the people themselves have the power, not the state. And shouldn’t we want to keep it that way?

An Out-of-Whack Capital-Labor Equation

Like AOC, I want workers to earn more, too. And I want businesses to earn more. And I want American citizens to enjoy a tremendous quality of life. I want our entire economy to thrive in ways that will continue to propel our nation forward for many generations. But we need to be smart about how we get there.

There is an imbalance in the capital-labor equation. Sanders and AOC and others are not wrong when they cite this issue.

It’s terrible that the most productive economy on Earth has so many people still living in poverty. And it’s not right that you can no longer get a decent paying job to take care of your family in this country. It used to be that you could graduate from trade school or high school (or not even graduate) and land a good job at the local factory where you made a decent enough wage to provide for your family and eventually retire. Nowadays, it’s pretty hard to do that.

But the increasing imbalance between wage earners and the companies that employ them has little to do with minimum-wage issues and everything to do with globalist economic policy that has encouraged the offshoring of jobs that we’ve seen over the last two decades.

In 1994, President Bill Clinton signed us up for the North American Free Trade Agreement (“NAFTA”). The treaty was aimed at encouraging trade in the Western Hemisphere and some economists credit the deal with growing the U.S. economy by as much as half a percentage point in the ensuing years. Whatever we may or may not have gained, the deal came at a cost to the auto-manufacturing sector…

NAFTA had a negative effect on auto-manufacturing jobs. Hundreds of thousands of American auto workers saw their jobs moved off-shore to Mexico. According to the Center for Economic Research and the Economic Policy Institute, more than 600,000 jobs that were lost in the ensuing years were a result of job displacement to Mexico. It wasn’t until the repeal of NAFTA that a lot of those jobs came back to U.S. workers.

But NAFTA was just the tip of the iceberg. The biggest hit to American workers and American wages came as a result of our trade deals with China.

Thanks to negotiations by Clinton, on December 11, 2001, China entered the World Trade Organization (“WTO”). Clinton promised that it would mean great things for American workers, consumers, and investors…

In actuality, entry into the WTO meant great things for China. In 2001, China’s economy was smaller than that of France. Now, 20 years later, China is the world’s second-largest economy and a major trading power.

Americans’ consumption of cheap goods exported by China (that came thanks to membership in the WTO) resulted in massive growth for China while adversely impacting jobs and wages in the U.S. MIT economists David Autor, David Dorn, and Gordan Hanson wrote in a poignant 2017 study that cited 986,000 manufacturing jobs in the U.S., or 20% of total job losses in the manufacturing sector between 1999 and 2011 came as a result of the increased competition from China. “The advance of China,” they wrote, “has toppled much of the received empirical wisdom about the impact of trade on labor markets.

Other studies point to the eight-year period between 2001 and 2009 to illustrate that during that time the U.S. lost 42,400 factories. Think about that: 42,400 factories closed down.

These closures resulted in a 32% loss of all manufacturing jobs during that eight-year time frame. Manufacturing jobs dropped to 11.7 million people in the sector… For the first time since 1941, the U.S. employed less than 12 million people in manufacturing.

As jobs dwindled, the U.S. trade deficit with China grew significantly. According to the Economic Policy Institute, between 2001 and 2007, computer and electronic-part imports accounted for almost half of the $178 billion increase in the U.S. trade deficit with China – resulting in a loss of 2.3 million jobs.

The current trajectory suggests that the Chinese economy will dominate the world by 2028.

Meanwhile, what does that mean for American jobs? One of the reasons the labor-capital relationship is out of whack is because our labor is exploited overseas. If companies that are always seeking better profitability realize they can outsource their labor, then why wouldn’t they? Where does that ultimately leave America? Not everyone should need a PhD in engineering to provide for themselves and their family.

We need government policy that encourages our companies to be successful while simultaneously advocating for the labor source we have here at home.

The Effect of Cheap, Undocumented Labor

In addition to trade and outsourcing issues, the Biden administration would be wise to get back to its roots on the issue of immigration. In recent years, Democrats have highly politicized immigration… But it didn’t use to be this way. Bill Clinton, Barack Obama, and Sen. Hillary Clinton were all outspoken against illegal immigration. Dianne Feinstein complained in 1993 about the costs associated with undocumented people in the U.S. saying that,

In Mexico, there is no welfare, there is no AFDC, there is no SSI, there is no Medicaid, there is no Social Security, there is no Medicare, and there is a 58 cents an hour minimum wage… The day when America could be the welfare system for Mexico is gone. We simply can’t afford it.

Nonetheless, in recent years, perhaps in an effort to restack the political deck and make Red states like Texas turn Blue, there is a desire to bring as many people as possible to the U.S. regardless of whether they align with our economic agenda… and regardless of whether they are accounted for in this country.

To be clear – I’m actually pro-immigration… How could I not be? We are a country built of immigrants… But our government needs to be thoughtful about how it approaches this issue. Because at present, we have such a sloppy, fractured system, and this broken approach enables too many people to fly under-the-radar in a shadow economy where wages are far less than those that are being paid to American workers. And that’s not fair to anyone.

I believe it creates a depressing effect on wages. I realize many politically motivated economists dispute this nonetheless, if a restaurant in a border state can hire an undocumented worker for less than minimum wage, then – how could that not result in sinking wages among unskilled American workers?

What Needs to Happen…

The real answer to economic challenges in America isn’t government interference in the relationship between employees and employers… But unfortunately, the minimum-wage hike argument exists in a highly politicized environment.

According to a Hill/Harris poll from January, 64% of voters support raising the minimum wage, including roughly a third of Republicans. But it’s an incomplete “solution” that doesn’t address our fundamental problems of tech automation, outsourced jobs, illegal labor, and the looming shadow of the Chinese economy.

Instead, we need policies that will encourage America to grow. We need pro-growth efforts that will propel our economy, ultimately helping our people enjoy a greater quality of living.

But my current concern is that there are too many people in government that are highly self-interested and influenced by the lobbying efforts of those that want to outsource jobs for the sake of profitability.

These politicians are all looking out for themselves… It’s time for Americans to do the same. We need to find our way economically or risk losing our place in the world to China.

Episode 30 Highlights

  • You can’t ignore the laws of physics, gravity, or economics, and America right now is spending itself into oblivion.
  • From 2010 to 2019, cumulative GDP growth was roughly the same we’ve spent in the past year in COVID relief.
  • From Black Monday of 1987 to the 2008 Great Recession, America’s financial crises can nearly always trace back to incompetent Fed policies.
  • The trillions in spending right now may lead to hyperinflation, with our economic landscape resembling that of Germany in the 1920s.
  • The U.S government’s elected to serve the American people and not the global citizenry at the American people’s expense.

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Trish Regan
Publisher, American Consequences
With Editorial Staff
April 8, 2021

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