Minimum wage, maximum perversion
Seattle’s Freedom Socialist Party recently advertised for a part-time web designer, offering $13 an hour. The problem? That very group advocates a $20 minimum wage. Doug Barnes, the party’s national secretary, was pretty clear on the matter, saying “We can’t pay a lot more than $13.” He just wants a law requiring everyone else to do so.
Sadly, there are people in high places on the socialists’ side, President Obama and his Department of Labor among them. And while the socialists are merely hypocrites, the Obama administration appears only too willing to lie to get its way.
Obama long has supported increasing the federal minimum wage. But without congressional buy-in there is little he can do. Except, as he likes to say, he has a pen. And he used it to sign Executive Order 13658, requiring all federal contractors to pay their workers at least $10.10 per hour. Obviating Congress is bad enough, but his argument for the increase is beyond the pale. A minimum wage increase, he claims, will save money by making workers more efficient.
Obama expects us to believe that we have to spend money to save money.
Here is the basic math Obama doesn’t seem to grasp: The only way a 40 percent hourly wage increase can save money is if contractors cut workers’ hours by more than 40 percent.
The Labor Deparment will write the regulations that enact the executive order. It concludes “There is evidence that boosting low wages can reduce turnover and absenteeism … thereby leading to higher productivity overall.” But Labor misreads the very economic research it cites. It takes evidence of causality — more productive workers earn higher wages — and assumes that the causality also runs in the opposite direction. This, of course, is nonsense. It’s as if the department wants you to believe that a light-hitting shortstop’s batting average would improve if only he were paid more.
Without question, a 40 percent pay increase will be a godsend for those workers who keep their jobs. But, like a game of musical chairs, only the workers who manage to stay in the game get the 40 percent. Those who are knocked out of the labor force because their labor isn’t worth $10.10 an hour will suffer a 100 percent wage cut.
So what’s the point of forcing federal contractors to pay their workers $10.10 per hour?
One answer is found in the regulations’ fine print. The proposed rules don’t just require that federal contractors pay their workers $10.10 per hour; the rules also apply to businesses that contract with federal contractors and to businesses that contract with businesses that contract with federal contractors, and so on without limit. The rules then define “contract” to include any agreement of any type and any form, whether written or verbal.
The bottom line is that a zealous regulator easily could interpret the rule as applying to all businesses everywhere.
With the stroke of his vaunted pen, the president is raising the minimum wage for everyone who works for a federal contractor. With theirs, the Labor Department can apply that rule to virtually every other employer in the country. And the pervasive intrusion of the federal government into every aspect of American life increases. Again.
It makes the hypocrisy of the Freedom Socialist Party seem almost cute by comparison.
Antony Davies is associate professor of economics at Duquesne University. James R. Harrigan is director of academic programs at Strata in Logan, Utah.