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Should Iowa's minimum wage be increased to $10 an hour?

BY DI EDITORIAL STAFF | FEBRUARY 24, 2012 6:30 AM

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No

A proposal in the Iowa Legislature to increase the minimum wage from the national rate of $7.25 an hour to $10 an hour over three years is dangerous and should not be allowed in a fledgling economy.

As The Daily Iowan reported on Wednesday, local business owners are skittish about the proposal and fear that this 38 percent increase will squeeze their payrolls. They will be less inclined to hire college students and those who are just entering the job market in service sectors of the economy: grocery stores, restaurants, retailers, etc.

Basic business and economic theory tells us that when a wage floor such as this is mandated, it results in employers not wanting to hire anyone they feel is only worth what lies in the "basement," in this case anything less than $10 an hour. When people wish to be hired, they must have skills to sell that a buyer finds worthy, just as a grocer only buys from vendors who provide good products at reasonable prices. If employers hire an unworthy worker anyway, it must result in an increase of prices for the customer or cuts in costs to make up the difference. Are people ready to have their grocery bills jump or for their sandwich at lunchtime to cost more?

San Francisco has experienced this many times in recent history. It raised their minimum wage on Jan. 1 from $9.92 per hour to $10.24 per hour, but it has implemented slight increases for years. The Wall Street Journal reports that fast-food prices rose 6.2 percent in San Francisco compared with the rest of the Bay Area in 2004 after a minimum-wage increase.

There's a chance that Iowa business owners or entrepreneurs looking to start businesses here may look to other states with lower minimum wages. It's all about competition. If an employer in Iowa must pay a worker at least $20,800 per year at $10 an hour before taxes, what would stop them from moving to Wisconsin, where they have to pay that same worker $15,080 at $7.25 an hour if that makes the difference in their overhead?

This is not collusion but market competition. If a free market were to exist, wages would achieve equilibrium and follow the natural motions of the economy. We have exchanged an economy based on the merit of one's abilities for one filled with regulations and mandates from the top-down that cradles labor and punishes business through a redistributive scheme. The Bureau of Labor Statistics reports that the average wage in 2010 was $21 an hour, nearly three times that of the minimum wage and still above what is generally accepted to be a "living wage." This is a purely political game, as Sen. Bob Dvorsky, D-Iowa City, admits.

Oppose this minimum-wage increase.

— Joe Schueller

Yes

The prospect of a $10 minimum wage should have everyone in Iowa City jumping for joy — students, city councilors, even dance-club owners.

Jump around, dance-club owners. Jump around.

I know, I know. You're all like, "but increased wages would mean a cut in my profits." Chill. That will be more than offset by better business and better employees.

About the better business: Think of your typical clientele. It's college students, many of whom relying on minimum-wage jobs for discretionary income (e.g. extra dough for more shots, more Panchero's, more taxi-rides).

Low-wage earners are hugely more likely to spend any extra money than anyone expected to trickle down their profits. Hundreds of studies have proved this. According to a 2004 study from the National Bureau of Economic Research, for example, those earning $25,000 or less spend either all of their income or more than all of their income. Any marginal increase in their wage goes directly into the economy, directly into the housing market, directly into Brothers, Martinis, what have you.

Also, employers might actually save in employee expenses because of the minimum-wage increase. With better wages, more people will want to go to work. With more people working, the more competitive the job market, which means more potential employees from whom to choose and better employees eventually chosen. Better employees (not to mention happier employees, because they're earning $10 per hour) means less people to fire, which saves a bunch of money.

It's been estimated that the cost of hiring a new minimum-wage employee is about $3,700 from costs and production loss. Divide that by the proposed increase, $2.25, and you get 1,345 hours of employment, or about a years' worth of 25-hours-per-week employment. So, if the raised minimum wage prevents the firing of two employees in a year, the minimum-wage has effectively doubled its investment for that year. Hell, from this data alone it may be smart for employers to enact their own minimum-wage increase.

Now that we've covered the microeconomic argument, I'll provide some big-picture evidence for such a minimum-wage increase.

The United States is ranked 15th worldwide in GDP per capita. There are only two countries ranked ahead of the United States that can be reasonably compared with such a large nation — Canada and Australia. The lowest minimum wage in Canada can be found in the Yukon — $9 an hour (or $9.01 in U.S. currency). The minimum wage in Australia? $15.51.

Stop listening to your gut and look at the numbers. Raise the minimum wage and make basically everything better.

— Chris Steinke


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