Yesterday President Obama once again displayed his adept skill at playing the “low hanging fruit” game of politics by formally signing an executive order raising the pay for employees of federal contract workers. Of course, he wants Congress to do the same for all Americans.Never mind the fact that “all Americans” who actually earn the minimum wage amount to about 1.6 million workers. That’s it. Despite the fact he says that increasing the wage nationwide will “lift millions out of poverty immediately.”
But the second and third order effects of doing this will have widespread deleterious effects for businesses who employ hourly wage workers – and exacerbate unemployment.
I happened to have lunch today with a local business leader possessing a stellar economics background — as opposed to a community organizer. We discussed some basic economics, and did the math.President Obama demands business owners with employees working on federal contracts must pay a minimum wage of $10.10. Now, if I’m an employee who has worked at one of those companies for a couple years already and have worked my way up to $10.10, but someone new comes on board immediately at the higher wage, I’d have a problem with it. I’d go to my boss and ask for a raise, since I have longer tenure. So maybe I get a raise to $13.00.
But what about the employee with higher skills than me? She already makes $13.00. It’s certainly not fair for her to stay at $13.00, right? She should get $16.00, at least.
This is the definition of wage inflation and this is what Obama is creating. He likes to say raising the hourly minimum wage from $7.25 to $10.10 would boost the economy. But that’s yet another Obama lie.Business owners are in business to, well, make a profit. Now, with higher tax, regulatory and employee costs, business owners have to make a decision. They can push the new costs onto the consumer. They can push employees to part-time and cut benefits. They can cut employee positions and find ways to increase productivity without human cost. Or lastly, what Obama seems to prefer, they can go out of business, stay at home, get a government subsidy check, and rediscover themselves and their interests.
Economics really is simple in the world of practical application. Maybe not in the liberal academic theoretical world — after all, what percentage of folks in the Obama administration actually have private sector experience? Hmm, I know the fella at the top ain’t one of ‘em.I believe we should have policies — both tax and regulatory — that enable business owners, especially small business, to raise wages for their employees. We do not need some imperial highness who believes he can by edict grant wage increases to us peasants and serfs.