Thursday, February 4, 2021

Part I

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Should the Minimum Wage Be Raised to $15? Understanding the Moral and Economic Issues at Stake as the Debate Unfolds

Should the minimum wage be raised to $15 an hour? Should we have a minimum wage? If we should have one, where exactly should it be set? How should it be set? Who should set it? These are huge moral issues, and it’s really interesting that even as there is a very important national conversation going on, indeed a national argument about the minimum wage, there are far too few people who’ve actually thought it through in moral terms or understand it in economic terms. So this is a big issue. It’s right on the headlines of the newspapers. It’s very much a part of the agenda of the new president of the United States. President Biden and his administration is being driven by figures such as Senator Bernie Sanders in the United States Senate, now a Democratic Socialist Head of the Senate Budget Committee.

It is likely to be something that actually takes the form of legislation. It’s likely to be coming before Congress. The big question among the politicians is whether or not it will pass. But the worldview issues are really interesting. If you take a biblical worldview, you come to understand that the Bible values labor, and it values the tie of labor to reward. This is made abundantly clear over and over again, not only in the narratives of scripture, in other words, if you plant a crop, you can expect to have a harvest. If you don’t go to the work of planting it, don’t expect to harvest. You have labor and reward tied together in the Proverbs. You have it in the warp and woof of scripture. It’s just very, very clear. Labor is good. God made us to work. He made us to understand that work is tied to reward.

And it goes the other way too. As the New Testament tells us, the one who will not take care of his family is unworthy of being called a brother. Or as we also find in scripture, if he will not work, let him not eat. And it’s very clear, there should be a tie between work and investment and reward. A sane society, rightly ordered, honors that linkage between labor and reward. But then the question comes down, what about a just system of labor and reward? Who should decide if it’s just? Who decides how much anyone gets paid? Now in classical free market economics, it comes down to the principle that people as free human beings should be able to make free contracts with one another for anything that is not illegal. In other words, it should be illegal for either one of us, if the two of us enter into a contract to do something that is illegal. Just consider a murder for hire, for example, by definition, that’s not only illegal, it is morally wrong. That is an invalid transaction.

But when you look at other kinds of contracts, the reality is government by a classical economic analysis should involve itself as little as possible. But by the time you got to the early decades of the 20th century, there was a very strong pressure for something that would be legalized or mandated as a minimum wage. In the United States, that legal minimum wage did not come until the time of Franklin Delano Roosevelt. The U.S. minimum wage was first set in 1938 by national policy. And just in case you’re interested, it was set at a quarter an hour, 25 cents an hour. Other labor regulations came along with the establishment of the minimum wage. And of course, all this came in the midst of what was known as the Great Depression.

The argument was that the federal government had to step in to set a minimum wage. Now, how was that wage to be set? Well, the idea, going all the way back to 1938, is that the minimum wage should establish an adequate full-time pay, weekly or monthly depending upon how it was allocated, for someone to live above the poverty line. So the minimum wage should be set so that someone who had an hourly job working, say, 40 hours a week should have a minimal expectation of an income above the poverty line. Now, the minimum wage has changed over the years, and so have the number of hourly workers who are covered by the policy. I think most Americans hearing about raising the minimum wage, we think that that’s going to affect millions and millions and millions of Americans.

Actually, when you look at the hourly wage structure right now, as reported in the most recent completed year, that will be 2017 in most reports, the percentage of American hourly workers who are paid the minimum wage is 2.3%. That’s 2.3%. Which means the vast majority of those who are being paid an hourly wage are being paid at least something, even if it’s a few cents an hour, more than the minimum wage. Now that means that the percentage of those who are actually paid the minimum wage has been going down in the United States. That percentage was 13.4% in 1979, again, 2.3% in 2017.

But here’s something else that’s very important when you think about the minimum wage. When you look at a wage scale system and you raise the lowest wage, the lowest hourly wage, then what happens is it ratchets up the entire system. So when you’re talking about a raise in the minimum wage, you’re not just talking about going from the current minimum wage to some higher figure, by the way, the $15 is effectively more than doubling the current minimum wage, but if you look at increasing the minimum wage, you’re actually looking at increasing all hourly wages, if any kind of sense is going to be maintained in the salary and wage structure. Now it’s easy to understand the logic behind the minimum wage. You should be able to expect, according to this theory, a wage on an hourly basis that it at least keeps you out of poverty. That would include rent and food and some other expenses, but then, of course, you get into all kinds of calculations about what exactly is the poverty line, how far above the poverty line the minimum wage should be set.

But there is at least a moral logic to this, but that doesn’t mean it is the correct moral logic. I mean, this gets to a host of other questions that people generally don’t want to talk about, especially politicians. If a government does decide that it’s going to start setting policy like wage policy, then it is going to take responsibility for an incredible number of both predictable and unpredictable effects in the economy. Now, one thing to keep in mind is this, every time the wage structure goes up, there’s an immediate change in the job availability. When the wages go up, the number of jobs tends to go down, and that’s because employers often have a finite amount of money that they can pay people. And so if they’re paying fewer people more money, they’re doing that in exchange for paying more people less money. That’s just the way mathematics works.

Now, the other thing to keep in mind is that when you have a shift in the minimum wage, the greatest danger is that the jobs you’re going to eliminate are the jobs that are actually covered by, well, maybe you guessed it, the minimum wage. Which is to say that the people who are paid the minimum wage tend to be people who lack the skills to qualify for a job that pays more. Now, if you’re looking as an employer at your business model, you recognize that if the cost of labor is going to go up at that entry level, then you’re probably going to cut the number of entry level jobs.

Now, there’s something else to keep in mind here. We’re living in an age of increased automation. There are more businesses that are looking at some tipping point as to whether they’re going to have a function fulfilled by a machine or by some kind of technology or by a human being. Now here’s the thing, the machine costs money, but the machine can’t demand an increase in their minimum wage. If you’re looking at the minimum wage, which since July the 24th, 2009 has been $7.25 an hour, then what you’re saying is right now, then of course the proposal is to more than double that over the next five years, but if you’re saying just $7.25 right now, that doesn’t sound like a lot of money. But the question is, what are the employers getting in terms of return out of that $7.25 wage. That’s where employers will have to make the calculation as to whether or not they’re willing to pay the wage. And that means they’re actually going to have to make decisions as to how many paid positions they can afford.

Part II

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Who Decides What Is or Is Not a Just System of Labor and Reward? Who Decides What Is Fair? Big Questions Raised by the Proposed Increase to the Minimum Wage

But in a Christian worldview perspective, there’s more to consider here. For example, who decides what’s fair? Now, one of the principles of classical, conservative, free market economics is that free people should be able to establish free contracts based upon mutual self-interest. Now, again, you look at that and you say, “That makes perfect sense. How does it work?” Well, it means someone wants a job done, say a bunch of trees cut down. Now, that person decides it is worth $1,000 to have all those trees taken down and removed from the property. Let’s say that that works out on an hourly wage to less than $7.25 an hour. Well, let’s say the person who wants to do it actually wants that $1,000 and is willing to actually take a smaller hourly wage simply because the job seems like exactly what he or she wants to do. The established terms are met. The contract is satisfied. Both parties are happy. But not the federal government which says, “You’ve got to pay $7.25 an hour.” Or it’s about to say, according to the efforts by the Biden administration, “About $15 an hour within the next five years.”

So when you’re talking about a minimum wage, and again, there are arguments for and against it, both of them follow a certain logic. Just recognize that if you’re for it, you are saying, “We don’t want free people to be free to establish contracts, mutually agreeable contracts based upon their mutual self-interest. The government’s going to come in and tell both, “Here’s what interest you have to keep in mind.” There’s another moral issue that comes into this, and that is the fact that a minimum wage is basically what in economic terms is called an unfunded mandate. The government says, “You’re now paying 7.25 an hour, within five years you’re going to have to pay $15 an hour.” That is a mandate of cost, that’s a mandated payment.

But the government has the easy part in this, all it has to do is pass the law. It’s the employers who have to pay the money. This is an unfunded mandate, and in general, there should be grave moral concerns about unfunded mandates. If I tell you, “You’re going to have to pay this,” the easy thing for me is to tell you you have to pay it, the hard thing is for you to have to pay it. As I said, there are intended and unintended consequences. There are some predictable and unpredictable consequences.

Now, there’s a matter of honesty that should also apply here, will increasing the minimum wage raise the incomes of Americans who are paid the minimum wage, and by ratcheting up the system just about everyone else? Well, yes, that’s likely to happen. People are likely to make more money. Will they actually be able to have then an economic gain from this? Well, not if the costs of consumer goods, say rent and groceries, goes up at an equal or greater rate than the wage scale. And that’s something you’re going to have to watch. That’s why if you go back to the inflationary spirals of the 1970s, you had to have both wage and price controls if you wanted to have any meaningful control over the economy. But Americans should immediately understand and resist the idea of control in this sense, where the government’s saying what you can charge for a bag of sugar, what you can charge for an hour of your time.

Something else to keep in mind is that if you’re going to have a minimum wage, you’re probably going to have to come up with some exemptions, that is to say they’re probably going to be some people you’re going to say don’t have to be paid the minimum wage. Now, the largest group of those who are probably covered by an exemption in the United States are those whose primary income come by tips, say waiters and waitresses in restaurants. Here’s the thing, if most of those persons in the wait business are told that they can have a choice between tips or say the minimum wage, most of them will choose the tips. Why? Because, number one, they’re likely to be able to make more money. Number two, there’s a rather instant connection between their performance and the income that comes. And there are people who know they can really make that work.

Under the current rate set back in 2009, tipped employees are to be paid a minimum of $2.13 an hour. $2.13 an hour, that’s a long way from $7.25. It’s likely to be a commensurate kind of gap under the proposal the Democrats are now considering. But how does that work? Well, it means that there are individuals who take the wage of $2.13 an hour, because most of their income is going to come by tips and they expect to come out ahead.

Here’s what you need to note. Once a government decides it’s going to extend some exemptions, it generally has to come back in and complexify the matter even further. And that’s exactly what the federal government has done. Because now the federal government’s tried to hedge the bets on even those who are paid by tipping by saying that the employer must pay $2.13 if the person is betting on a greater income by tipping. And if the tips don’t actually come in to the level of the minimum wage, then the employer has to add to the income whatever’s needed to equalize up to their minimum wage. Are you seeing a lot of math involved here?

But there are two other considerations that we need to bring into our thinking before we leave this subject. One of them has to do with teenagers, teenagers entering the labor market. I entered the labor market as a hourly-wage earner in the year 1973. It was the very day I turned 14 years old. I got a job the day I turned 14, and I started making the minimum wage, which in 1973 was $1.60 an hour. I got to work 10 hours the first week, I got $16 pay. I thought I was a rich man. By the way, that very first paycheck I got was also an instruction in why I became a political conservative. It is because I didn’t actually get a paycheck for $16, I got a paycheck for $16 of earned wages, minus taxes withheld, social security, you name it. It wasn’t $16 I got to take home.

But I also learned another lesson. If I did well at my job, I didn’t stay at the minimum wage. If I did well at my job, my employer said, “You’re worth more to me than the minimum wage,” and began to pay me more than the minimum wage. So at that point I really didn’t care what the minimum wage was, I cared what I was able to make as a contract with my employer on an hourly basis about what my contribution to the firm was. My contribution, by the way, started with bagging groceries and taking those groceries out to the customer’s car. As I did so, I worked with the legion of teenagers who were involved also in their very first jobs. We were basically a band of happy hourly workers, bagging groceries, taking the groceries out to the car, thanking the customer, bringing the cart back in, getting to the next counter, starting the process all over again.

But here’s the bottom line, we need to recognize that every increase in the minimum wage, certainly anything where the minimum wage is now much less where it is projected, cuts out an awful lot of teenage opportunity. To put the matter bluntly, employers have to come to the conclusion that hiring a 14-year-old… Well, that was legal back when I was hired in 1973. Let’s say hiring a 16-year-old right now might not be worth it if that 16-year-old’s not going to produce more than, a lot more than, $15 of income in that hour.

If it’s an expensive proposition beyond that, the teenager’s not likely to get a job. Teenage jobs are likely to be the first jobs to disappear, and that has lifetime consequences. I’m not talking about lifetime wages so much as I’m talking about the lack of work experience for teenagers and adolescents, which I believe is very injurious morally and in terms of personal maturity as you look to the future. Here’s something I can tell you that it’s very well-documented, young people who began jobs as teenagers and learned a work ethic in that sense tend to have better jobs to do better at their jobs and to be economically ahead of their peers who didn’t.

That’s one of the problems with the minimum wage, it’s especially a problem when you look at ratcheting up the minimum wage as much as the Biden administration is looking to do. You’re basically saying, “No luck, teenagers. This is going to drive out an awful lot of jobs that teenagers could have, but you’ll just have to find a way into the workforce at another level.” That would be the minimum wage level, which is likely to mean you’re going to have to get some skills before someone’s going to give you the job.

Part III

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Is the Minimum Wage Right or Wrong? Are Some Jobs Expendable in Order to Raise the Minimum Wage?

But this is where Christians understand the biggest issue in all of this, it’s the moral question, is the minimum wage right or wrong? Again, I want to concede intellectually, in Christian worldview analysis, that’s an arguable proposition. You can argue that the minimum wage is right. You can argue that the minimum wage is wrong. There are consequences to both of those positions, to both of those arguments. I would argue that in the main the minimum wage is wrong, because I think it leads to less justice rather than more, is because I believe it doesn’t serve society as well, certainly as is promised. I believe that at least the most basic issue here is that it eliminates the freedom of free individuals in a free society to freely contract with one another for what each sees as mutually agreeable. That should be just basic. That should be a given.

But the argument that is for the minimum wage is that without it workers will be exploited. Now, again, that’s not a stupid argument, because in a society you’re going to have some vulnerable people, and they might not have the kind of social standing or social power to resist that exploitation. That is possible. That was the argument that was made by Franklin Delano Roosevelt and others going back to 1938. The question is, once government does this, is the government going to do it well? My argument is that once the government decides to intrude in an economy this way, it generally does it badly. But this is one of those issues in which we just need to say to one another as Christians, “There are arguments for, there are arguments against. You have to come up with which one based on upon both the principial issues and also the practical effects turns out best for you beings.”

One illustration on this issue that I want to bring to fore comes from a state in that was made by a former Secretary of Labor of the United States. During the Clinton administration, the most well-known Secretary of Labor was Robert Reich. He’s a well-known economist long before he became the Secretary of Labor. In 2015 he wrote an article back then, so that’s five years ago, a little bit more than that now, entitled The Morality of a $15 Minimum. Let’s be clear, he is for it. He’s writing from the progressive left. He is for raising the minimum wage. He is for doing it though in a way that he concedes means that there will be fewer jobs. This is rare. You rarely have an economist argue this honestly, acknowledging that raising the minimum wage is going to eliminate some jobs, some jobs are going to disappear.

This is what he said, he acknowledges in his own words, “Yet maybe some jobs are worth risking if a strong moral case can be made for a $15 minimum.” Very interesting. “Yet maybe some jobs are worth risking if a strong moral case can be made for a $15 minimum.” The next sentence he writes is this, “That moral case is that no one should be working full time and remain in poverty.” Now, that’s an argument we can understand. The problem with that is that when the minimum wage was established in 1938, it was established on the idea that you would have a family, and you’d have one major wage earner, and that wage earner ought to be paid a minimum wage that would keep the family above the poverty line. Once you sever all of this, given the breakdown of the family, the argument becomes a lot more complicated and much less persuasive.

But again, just think about the fact that Robert Reich had the honesty to write, “Maybe some jobs are worth risking if a strong moral case can be made for a $15 minimum.” Now, let me tell you to whom that argument is going to make sense, those who after the minimum wage is raised keep their jobs. To them that argument is rightly going to be moral, it’s going to make sense. Let me tell you those to whom that argument will appear to be not moral, but immoral, and that is those who will make nothing after the raise in the minimum wage, because their job disappears.

Earlier this week, we were talking about the GameStop issue and that story about a crazy development on Wall Street. I mentioned at the time that stock prices eventually tend to fall to exactly where the market thinks the company is worth or will be worth in the future. The kind of speculation that led to a 1700% increase in GameStop’s stock over a brief period of time is going to fall to earth. Indeed, it already has fallen to earth. Eventually a company stock comes down to what people think the company is worth.

My point in concluding this about the minimum wage is that eventually employers decide what labor is worth. If they don’t decide that on the basis of what they pay, beginning with the minimum wage and going up, then they will make that decision based upon how many they will pay. One way or another, they’ll make the decision, “We’re going to pay this much for labor.” And then they’re not going to pay anymore. It may be a greater number of people, it may be a lesser number of people, but basically it’s just not possible for a labor cost to expand the way politicians believe they will expand or promise they will expand. But it’s also true that if you’re going to have a minimum wage, then eventually the political debate is going to have to be over what that minimum wage should be, and that does become a political question.

As you watch the political debate that’s coming on this, and it’s likely to come pretty quickly because the Biden administration’s trying to put this in the stimulus bill as a response to COVID-19, more to talk about that, but the timing is coming fast. Watch the most interesting debate, which is likely to be in the United States Senate, where you’re going to find senators representing states where the effect of an increase in the minimum wage would be quite different. The outcome of a mandated raise in the minimum wage is likely to look very different if you’re in one state than if you’re in another. Some senators are going to want to get the political credit for doing what the people say they want, raise the minimum wage. Other people are afraid they’re going to get the blame for the loss of jobs that will almost assuredly follow.

I’ll admit, I have to think about this in somewhat personal terms. If you were to go back to the 14-year-old me and say, “Would you like to have a higher minimum wage?” I would have said, “Yes, you bet I do.” I was paid that then glorious $1.60 an hour, I would have been glad for it to have been more. But here’s the point, had the government said that the entry wage had to be 2.50 or $3 an hour, 14-year-old Albert Mohler probably wouldn’t have had that job in the first place.

Over the course of the next several weeks we’re going to look at a number of very interesting pressing political issues that have massive worldview dimensions most people aren’t going to be talking about. Hopefully, we’ll not only be talking about them, together we’ll be thinking about them.