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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
“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?
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