The Business Of Minimum Wage

Larry Price
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Wednesday - April 06, 2005
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Fact: About 6 percent of the state’s workers make minimum wage. Of those, about half also receive tips. The minimum wage level has, for some strange reason, been attached to something other than equal work for equal pay, or ability to pay, or equity. This year the legislators are linking the minimum wage issue to the “high cost of living, including the cost of high rents.”

There are those, however, who are worried about the “stepladder” effect. They claim the increase in the minimum wage triggers pay hikes for others up the wage ladder. With only 6 percent of the total work force earning minimum wage and half of those in the tipping category, it’s highly unlikely raising the minimum wage a dollar would cause small businesses fiscal destruction.

It’s interesting to note that one of the biggest problems for the Small Business Administration is now and always has been defining what they mean by “small.” They have changed their minds many times as they go from a definition based on the number of employees to total revenue. They have changed so many times no one is really sure of the thresholds for either. Why is the definition important? Because the federal government tries to award 25 percent of its $200 billion in annual procurement contracts to small business. Said another way, it’s where the revenue is for most small businesses.

So it’s a little hypocritical for business leaders to lament about the “stepladder” effect. What’s worse than the “stepladder” effect is the effect of poverty. Determining poverty guidelines is as confusing as defining what a small business is.

The federal minimum wage is $5.15 an hour. In Hawaii, that would leave single workers in poverty. Here a family of four with a single breadwinner would have to earn more than $21,680 a year to break the poverty line. They are talking about raising the minimum wage to around $7 beginning Jan. 1, 2006, and $8 an hour by 2008. That’s not going to break anyone’s bank.

The business leaders are right when they complain that when the minimum wage goes up, so do employer contributions to temporary disability insurance, unemployment insurance and workers’ compensation insurance. The key word here is insurance. Business leaders want to insure against everything that will add to their cost. And, of course, employees are a cost of doing business.

What our Legislature might consider is aborting the minimum wage law enacted by Congress in 1938, which was supposed to allow families to meet basic financial needs. In that way we could all see what management would be willing to pay employees for their services. What would the workplaces of Hawaii would look like if there were no labor laws? How much do you think companies would pay their employees? Would they protect them with workers’ compensation insurance? What about unemployment insurance? Medical coverage? What if all employers only allowed employees to work 39 hours a week so they wouldn’t be forced to pay medical insurance? Yes, they know how to cut corners, but wouldn’t it be interested to see just how much wages and benefits they would cut if they could?

Truth of the matter is the absence of labor laws would create slave labor and sweat shops all over again. Some of that philosophy still haunts workplaces today. Hopefully, the minimum wage will go up to $8 by 2008.

What if we pegged the minimum wage to what legislators are paid? That wouldn’t work, because they would claim they work themselves to the bone around the clock, 12 months out of the year, without vacations or sick leave.

Reasonable people might agree that if the minimum wage offered by a state is below the federal guidelines for determining poverty in that state, then the minimum wage is too low and must be raised.

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