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CEO’s Letter: Careful Fido

By Elliot Clark

“Facts are stubborn things” argued John Adams as he passionately defended the British soldiers accused of murder in the shooting death of five protesters at what came to be known as the Boston Massacre in 1770. Most people forget that Adams got all six of the eight men acquitted by showing that they were not guilty of intent necessary to sustain a murder charge (the other two were convicted of the lesser charge of manslaughter). Adams went on to become President and if this were today, I am sure whether he was a Democrat or Republican, he would work equally hard to ignore the facts.

This magazine is about HR and this column is about the minimum wage. I have rarely heard so many impassioned arguments on either side of an issue so firmly grounded in emotional nonsense. Minimum wage in America has to rise. End of story. Not because of the “need for a living wage” or some heartfelt picture of low income workers, but because it so low that there is a serious competitor for unskilled labor no one is clearly recognizing.

The economy is like a giant game of Jenga. Pull out one piece and the stability of other pieces are all effected. The minimum wage is competing against the social welfare state. The issue is not the Democrat’s populist zeal for the woebegotten little guy or the Republican’s staunch defense of the small business owner. It is about labor participation.

Prime male (between the ages of 25 and 54) labor participation was 99 percent in the 1950s. Fast foward to today, and the Bureau of Labor Statistics finds nearly 88 percent of prime males working. That is a significant decrease. One out of eight prime males is not working. Note: This measure is a better reflection than comparing a 60-year-old statistic for females (sorry ladies) because at that time, women were not working as much.

There are reasons for this related to skills deficits by workers. Low-skilled laborers can also be the victim of changing technology, automation, poor literacy, urban blight, or extended period of unemployment. However, as reported by studies published in Forbes, Fortune, and Wall Street Journal, the average amount earned in some states by welfare recipients may exceed the meager $15,080 per year offered by minimum wage jobs. In addition, many of these jobs may not offer healthcare while welfare includes Medicaid and other support services. If you believe in economic utility theory then people will always behave in the way that maximizes their financial benefit, which may now be to NOT work.

Before my right wing readers call for an end to welfare or my left wing friends (I’ll get to you in a moment) break out in cheers, I am not calling for the end of the welfare system. But if we have deemed a minimum subsistence level, we should not set minimum wage below it. If so, we’ll create an incentive to remain subsistent rather than productive.

The recent calls by liberal functionaries to magical nearly double the minimum wage are equally stupid. I don’t want to become another “bern” victim but the economy shouldn’t be set ablaze by these jackasses. An increase from $7.25 an hour to $15 will produce a destructive supply shock to labor markets and thousands of small businesses will suffer or fail. Large companies with substantial low-skilled workers will raise prices and the economy will experience inflation. These could outweigh benefits (I think the left wing just stopped cheering, oh well).

The truth is that we should gradually raise the minimum wage by a dollar a year (or something similar) for a period of years until it reaches a level above the subsistence level (and I’m not sure that $15/hour is the right amount). I am sure people from both politicial sides are angry at me, but I think everyone not in political office can agree that change is inevitable and should occur for the right reasons—in the right ways—to sustain benefit.

We non-politicians can agree that letting politicians talk about economics without ever studying it is like giving a dog a hand grenade and telling it to be careful.

Elliot H. Clark, CEO

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