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Why San José’s new wage should not be celebrated

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Posted: Tuesday, March 19, 2013 12:00 am

Everyone wants to make a decent living. But unfortunately, local government intervention, such as the city of San José raising its minimum wage to $10 per hour, has harmful consequences.

Apparently, a couple of college students got the idea from a "Social Action" (SOCI 164) class and pushed the agenda. No reports as to whether these students or their professor have had any experience in making small business payrolls.

But let's follow this idea logically: If a mandated minimum wage helps those at the bottom of the pay scale, then why not raise it to $12, $15, $20, even $30 per hour? Wouldn't that help even more?

Extra money for pay hikes has to originate from someplace. Some supporters believe that it comes out of the pockets of "evil" corporations. In reality, it is generated from hiring fewer people and raising prices. It also means that salaries already above the minimum standard have to be jacked up as well.

Local reaction to the San José story has been mixed. Some support the move while others express concern.

"If they did this in Lodi and raised prices, I'd probably dine elsewhere," said one friend.

Dave Arney, Lodi resident and owner of a local manufacturing business, predicted dire consequences should the same increase happen here.

"I have around 40 employees," he told me. "I would not be able to raise prices because of stiff outside competition. I'd have no choice but to cut back hours, relocate, or go out of business altogether."

So who profits by raising the bar? The Bureau of Labor Statistics reports that a majority of minimum-wage jobs are held by unskilled workers between the ages of 18 and 24. Turnover of these positions is very high. A recent study reported that the average duration for one of these jobs is around 14 weeks.

Another factor to be considered: Most of these jobs are trainee positions.

They provide an opportunity for unskilled young people to learn a trade and advance to higher salaries.

If one location pays more, experienced people from other parts of the country or state enter that market. They are hired over the inexperienced. Thus, opportunities for those learning on-the-job training are often curtailed.

In June 2006, before a 40-percent increase in the national minimum wage, Forbes magazine reported that 42.1 percent of teens between the ages of 16 to 19 were employed. But by 2010, only 28.6 percent of this group had jobs.

If governmental entities really want to do something to help the lowest wage earners, they can start by creating business-friendly atmospheres for more private-sector jobs. When demand for labor is greater than supply, wages can grow at a faster rate than any politician can decree.

In North Dakota, fast-food jobs are paying an average of $15 per hour in a state where there is a shortage of unskilled labor. It's all thanks to the recent oil boom. Unemployment there is at 3.5 percent vs. California's 9.8 percent.

As a side note, California has the same opportunity to create jobs in energy production as this Midwest state does — coupled with a positive wage trickle-down effect to unskilled, unrelated occupations. However, politicians have refused to take full advantage by restricting development of our valuable natural resources.

So before we break out the champagne corks and celebrate San José's new minimum wage ordinance, let's put the emotional arguments aside and think about the real consequences.

An artificial wage hike is not likely to solve a standard-of-living problem. If anything, it only hurts the very people it is supposed to help.

Steve Hansen is a Lodi writer.

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