NFIB: Higher minimum wage will cost jobs, raise prices

Entry-level or low-skill wage earners in Wisconsin would see higher paychecks if the state’s move to raise the minimum wage from $5.15 to $6.50 over two years passes.

It’s a contentious issue that Bill Smith, state director of the National Federation of Independent Businesses, says could result in fewer jobs at small employers and higher prices at cash registers.

Smith was part of a task force, appointed by Gov. Jim Doyle, that he says was charged with recommending an increase in the minimum wage. The governor’s will prevailed among task force members, who approved the increase 16-2.

Smith supported it because the raise in minimum wage was staggered over two years, giving small companies time to digest higher labor costs. But he believes that state and local government intervention into minimum wages is bad economic policy.

Smith spoke with Editor Brian Leaf on March 16, the day Doyle vetoed a measure that would have prevented Madison and other municipalities from creating their own minimum wages.

Brian Leaf: Has NFIB come out for or against the minimum wage hike?

Bill Smith: I was on the governor’s task force on the minimum wage. The charge of the task force was to recommend an increase in the minimum wage. It wasn’t to consider an increase. It was to recommend an increase. Clearly, proponents of a higher minimum wage outnumbered the opponents of a higher minimum wage. Given that backdrop, after several meetings we did vote by a 16-2 to increase the minimum wage in a two-step process. It’s not just an increase in the minimum wage; it’s also a minimum wage reform. The reason it is minimum wage reform is because it minimizes the impact of a higher minimum wage on both the minimum wage workers as well as employers.

I wanted to make sure that it is understood that while I voted to increase the minimum wage, I would not have done that if we hadn’t also achieved some reforms that minimized the impact on employers, especially small business employers.

Leaf: That’s got to be the biggest concern for you and the little guys out there.

Smith: It is. I represent more minimum wage employers, or near minimum wage employers, than anyone else on that council.

Leaf: What do you see as the impact of this if it does become law?

Smith: For many employers, it will probably have little immediate impact. In today’s labor market, there just aren’t many minimum wage workers. As far as workers at minimum wage, it is going to result in a pay raise. If you keep your job, you’re going to get more per hour. For those near the minimum wage, you probably will also get a pay raise because it narrows the gap between a minimum wage worker and someone who has been on a job longer.

Leaf: You said if you keep your job.

Smith: Credible studies show very clearly that for some workers it is going to result in fewer hours or in being laid off, particularly part-time workers. That’s just the way the economy works. Minimum wage is not a very effective device for raising the purchasing power of people. Those people typically have limited skills that they bring to the workforce. When employers look at that particular worker, they’re going to say if I can’t hire you I’ll have to hire somebody else to do it. Or sometimes with a small business the owner will take over some of the responsibilities and just eliminate the position.

Leaf: On a large scale, Wisconsin has gone through a recession that has cost it tens of thousands of manufacturing jobs and related service jobs. Is this an effort to pump more money into the economy to offset some of that job loss?

Smith: It is. It’s a misguided effort however. It is not an effective way to help that low skill worker. We’ve suggested that if they want to help that person with low skills and low income they should be increasing funding for the earned income tax credit. It’s cash in their pockets. It is not subject to taxes. It does not affect other benefits they may have such as food stamps or Social Security benefits. That can add more to the purchasing power to low-wage workers than an increase in the minimum wage, which is subject to taxation, which can price people out of jobs, which can price them out of some of these social benefits they are receiving. If we really want to be serious about improving purchasing power and giving the economy a kick, then we should be looking at the earned income tax credit, which is far more efficient, far more effective, than the minimum wage.

Leaf: It all comes back to the consumer and are we going to see higher prices if the wages go up?

Smith: Absolutely. You have to recover that. A small business has very few options when the cost of labor is artificially raised by the government. Seventy to 80 percent of the cost of operating a small business is labor. You’re going to see fewer job opportunities as a result of that. And those who keep their jobs will pay higher prices. It’s a great political issue, but from an economic standpoint, minimum wage is a disaster.

Leaf: Do you think it is equally disastrous on a city like Madison, which wants to raise it from $5.15 to $7.75?

Smith: That’s even a bigger disaster. When you have local governments raising minimum wages on companies within their boundaries, that’s just not good politics and it’s not good economics. That’s the other piece that comes into play here. We’re hoping the governor will sign Rep. Grothman’s legislation that would preempt the authority of local units of governments to enact their own minimum wage. (Editor’s note: Doyle vetoed the bill on March 16) That will create confusion, all kinds of imbalances across the state as local units of government start doing their own minimum wages. It’s unnecessary. The task force has spoken. The task force has decided that a modest increase in the minimum wage is appropriate. But we must have that legislation signed into law.

Leaf: Have there been other communities around the country that have implemented local minimum wages?

Smith: I believe San Francisco, Santa Monica, Calif., Santa Fe, N.M. Some of those ordinances are tied up in court and I’m not sure the status of them. The majority of the states are at a minimum wage level consistent with the minimum wage. States that have exceeded the federal minimum wage have some of the highest unemployment in the nation. You can do your own connection of those dots.