Thursday, November 6, 2014

Nebraska’s Higher Minimum Wage has Consequences

 “When the people find that they can vote themselves money that will herald the end of the republic.”  Benjamin Franklin
“Hell isn't merely paved with good intentions; it's walled and roofed with them. Yes, and furnished too.” -- Aldous Huxley

“For the love of money is the root of all kinds of evil.” 1 Timothy 6:10, Holy Bible

Now with Nebraskans voting to raise the State minimum wage to $9.00, the actual consequences must be addressed.  Since Nebraska will have a higher minimum than all neighboring states, the question is, why invest in Nebraska when it is less expensive to create a new business somewhere else? Raising the minimum also has an adverse impact in employing young people. The minimum wage laws of the United Kingdom and Australia reflect this fact but Nebraska’s new minimum wage law does not. What consequences will take place?
Also, Nebraska’s minimum wage of $9 is forever written in stone. It will take two-thirds of the Unicameral to vote to change it, or another ballot initiative which is unlikely to happen again. With Nebraska setting the minimum wage above the Federal minimum, all the responsibility for enforcing the minimum wage will be Nebraska’s, not the Federal government. Does Nebraska have the resources for such enforcement? Finally, since there is no criteria for setting or raising the minimum, investing in Nebraska is a more risky proposal compared to Missouri and Colorado where the minimum is annually adjusted for inflation. What is to stop Nebraska voters from raising minimum to $25 an hour with an annual increase of a dollar each year thereafter?      
A convergence of interests made this vote possible. While the public was focused on a higher wage, many businesses were more interested in raising consumer prices, cutting unproductive employees, cutting employee benefits and installing automation. Raising the minimum wage gives businesses the green light to do so. As for the news media, most journalists are looking for dramatic stories, not slow moving objects like economic consequences. In addition, many journalists comprehension of economics is subpar which made it impossible to deal with conflicting information. Finally, many politicians saw no reason to really take on the minimum wage issue when they were more focused on winning in an election in the short term.
Here is how bad the situation actually is. In 1938, the minimum wage was 25 cents and only applied to businesses engaged in interstate commerce. There was no payroll tax. In 1967, hotels and restaurants came under the minimum wage for the first time but had a separate rate of $1.00 and the payroll tax was 6.4 percent. Today, the minimum wage is $7.25 and the payroll tax is 15.3 percent. With passage of 425, Nebraska’s minimum wage will have risen at an average of every two years within 10 years, a 74 percent increase, when it becomes $9.00. (In 2007 it went from $5.15 to $5.85, 2008 it went to $6.55 and in 2009 to $7.25)  For hotels, restaurants, and retailers, this is a 900 percent increase since 1967. These changes in the minimum are not based on any economic criteria and contribute to inflation.
So how do employers provide pay raises when government is so willing to do it for them? How do workers stay out of poverty if their labor is taxed even more? How does anyone save money for retirement when the buying power of the dollar keeps on eroding away? No wonder so many people end up being dependent on Social Security and other government programs.
Nebraska will lose a Congressional district in 2020 Census apportionment if Nebraska does not find more constructive ways to attract people to actually bring wealth and prosperity to the State. The State’s current economic prosperity is largely the result of avoiding doing the most idiotic things other states have done. With the minimum wage hike, Nebraska must abolish business taxes for those businesses making less than a million dollars a year. This is the only way to alleviate the damage caused by higher minimum wage law and allow employers to employ more people.
In the long term, Nebraskans must enter in to longer and more comprehensive understanding of economics. The minimum wage laws must be addressed through a discussion of economics, not elections. Such discussions should ask, why does Nebraska need a minimum wage law at all considering the Federal government already has such law?