Commentary Magazine


The Mark of Cassandra

As we continue in our economic doldrums, we are reminded that once again one of the greatest sins in America’s eyes is to be right about something too soon. The earliest patriots were considered traitors by the loyalists. Abolitionists, prior to the Civil War, were seen as dangerous zealots.

And today we are doing precisely the same thing.

The first real symptom of our problems was probably the collapse of Fannie Mae and Freddie Mac. These two organizations, the bastard children of government and private industry, embodying all the worst traits of both, had been cruising for a major downfall for years. Some people saw what was coming and tried to head it off — mainly Republicans. But they were blocked by the Democrats, who in perfect lockstep stymied any and all attempts to impose tighter regulations on them. The leading voices in defending the indefensible? Senator Chris Dodd, chairman of the Senate Banking Committee and “friend of Angelo.” Senator Kent Conrad, chairman of the Senate Budge Committee and another “friend of Angelo.” Representative Barney Frank, chairman of the House Financial Services committee, who had a long-term relationship with a top Fannie Mae executive. James Johnson, former Fannie Mae CEO and advisor to Barack Obama’s campaign.

So, who were these Republicans who tried in vain to head off the meltdown? Three of them were Senators John E. Sununu, Elizabeth Dole, and John McCain.

They share another distinction between them. All were defeated in the last elections.

Likewise, unemployment. After a recession right around the turn of the millennium, unemployment dropped every year from 2003 to 2006, then held steady for a year. Since then, it’s risen so that it’s back up where it was in 2004. A lot of things have changed since then, especially in the economy, but there are those people who predicted just such an occurrence, and predicted that it would happen after May, 2007.

Because in May 2007, the minimum wage was raised.

When this was being debated, there were quite a few people who argued that raising the minimum wage would hurt far more than it would help, and that a lot of the arguments for raising it were bunk.

For example, the citation of how difficult it is to support a family on minimum wage. While this is true, it is largely irrelevant. This study shows just how many workers earn minimum wage for an entire year: 450,000.  Less than half a million workers.

In a work force of about 135 million, that’s about one third of one percent. Or about one in three hundred workers.

The vast majority of people earning minimum wage are part-time workers, those who need the flexibility that they trade off for higher pay, and/or receive a raise within their first year.

This is how most businesses that employ part-time workers operate. Let’s use the classic example of a stocker at a Wal-Mart.

Wal-Mart needs a dozen new shelf stockers. This is not a very challenging job; the supply of qualified workers vastly outstrips the demand. So Wal-Mart can put the job out for minimum wage and be assured that they will get more than the dozen applicants that they need. Out of them, they choose the twelve best and hire them for minimum wage.

Most businesses have a “probationary” period for new workers to learn the ropes and prove their abilities and commitment. 90 days is one of the most common periods, so we’ll assume Wal-Mart follows that example.

Out of those dozen hired, two have quit and one has stopped showing up. A fourth was fired for undisclosed reasons. That leaves eight.

Four have done the job adequately, but that’s about all you can say. They showed up on time (largely), did what they had to (barely), and didn’t get in any trouble. They are kept on, at minimum wage, with strong urging to “shape up or ship out” within the next 90 days.

Three have done their job well. They get satisfactory reviews and a raise.

The twelfth was superb. She gets a raise and a promotion. She’ll now be in charge of the other seven stockers who are still employed.

And Wal-Mart starts looking for another four stockers to hire at minimum wage to fill the vacancies.

Now, most jobs that pay minimum wage do so because, quite frankly, they aren’t worth much more than that. As noted, they are the jobs with minimal requirements — pretty much anyone with two brain cells to rub together and a pulse can meet them. When the compensation employers are required to pay is raised, then the employers will not simply suck up the losses. They will find other ways to balance out the books. The most common response is to simply hire fewer workers and ask more of them.

In the Wal-Mart example, those dozen stockers making minimum wage used to cost Wal-Mart $61.80 an hour in straight pay. If they keep their payroll level, then they’ll have to get by with 8-9 stockers.

So to give those 8-9 (let’s say 8, because Wal-Mart is unlikely to tolerate even a slight bump in their payroll at the bottom end of things) a raise, the likely consequence will be 4 more workers unemployed.

So, why raise the minimum wage? Well, there are a couple of reasons.

First up, there is the “we need to look like we’re doing something good” issue. To some people, the most important thing is not to do something good, but to be seen as doing something good. Even if it, in the end, causes more harm than good, as long as the right people are seen as doing something, then that’s all that matters.

Then there’s the seldom-mentioned aspect about how a lot of unions base their pay scales on minimum wage. Members’ pay is not defined in dollars, but in multiples of minimum wage. So when the minimum wage goes up 40 percent, then so does the union’s pay.

This was all pooh-poohed when the minimum wage was raised almost two years ago, but is now coming to pass. And we can fully expect that those who raised the point will be just as severely punished for being right too soon, as were Senators Dole, McCain, and Sununu.

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