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EDITORIAL: Magic won't help the working poor

By: The Gazette editorial board
July 10, 2017 Updated: July 10, 2017 at 4:21 pm
photo - Fairy stars
Fairy stars 

WANTED: a functional magic wand.

We don't care what it costs because a real magic wand can magically pay for itself.

If The Gazette's editorial board can find the desired wand, the first order of business — after demanding the device pay for itself — will be elimination of poverty. In fact, we will order the wand to make everyone rich.

Passing a flashy new minimum wage law is like waving a wand and hoping for the demanded results. If this works, proponents should pitch minimums of $100 an hour or more. Most people hate to witness economic struggle and want everyone to have wealth.

Magic wage laws don't work because employers cannot magically increase revenues when overhead goes up by authoritarian fiat. An employer's prices have limits because consumers have only so much to pay for discretionary services and goods. Otherwise, we would pay thousands or millions for burgers and fries at the drive-thru.

Think about a household hit with a substantial increase in utility costs. The new overhead does not cause new income. Higher overhead means some discretionary cost must be slashed to make the budget work.

That's what happens with a minimum wage hike. Employers must cut costs to pay for it. Typically, they lay off employees or reduce staffing hours to a level that gets them by. They cannot survive without running water, electricity, the inventory they sell, service on debt or other nondiscretionary costs. So the workforce, which can vary in size at management's discretion, typically takes the hit.

Ask city officials in Seattle and the researchers they hired from the University of Washington.

The Seattle City Council and Mayor Edward Murray passed an law to phase in a minimum wage of $15. The second phase took wages in 2016 from $11 to $13. City officials commissioned a study of results, hoping it would reveal better conditions among the entry level workforce.

The findings were not good. Though politically expedient for politicians, the wage law hurt the working poor.

The study concludes the "increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent."

The reduced hours of 9 percent cost each average employee $179 each month. Meanwhile, the 3 percent average wage increase recoups only $54 of each earner's loss.

The math is simple: $54 - $179 = -$125.

Any single parent waiting tables knows the value of $125. Losing it means less food at home, no cable TV or no movie night out with the kids. For those on the brink, it could mean losing running water, electricity or the home. The loss of nearly 7 percent income hurts when stretching to get by.

A recent study by the University of Colorado found similar trends after Colorado's recent wage hike. New wage laws are in political fashion all over the country, and mounting evidence reveals disturbing outcomes.

Magic wands are fun to dream about. If we pretend they work, we make silly choices with unintended consequences.

We all want higher wages for young people, other entry level employees and workers with limited skills. Low wages are a dark economic reality, a necessary evil of sorts, and should be temporary for most who earn them.

Real solutions are not easy. They involve training, experience, education and other avenues of advancement by individuals with all levels of intelligence and skill.

We cannot pretend to counter the unfathomable might of market forces. Economic principles are real. Magic is fake.

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