Senate Committee Passes Rural Job Destruction Act

Now Hiring sign in Centreville, Va. Image source: Patch.com

Are you kidding me? The Senate Labor and Commerce Committee just voted to increase Virginia’s minimum wage from $7.25 an hour to $15 an hour by 2021. The measure won the backing of Senate Majority Leader Tommy Norment, R-James City County, and Sen. Frank Wagner, R-Virginia Beach. Now, it appears, even many Republicans believe that prosperity can be enacted by a legislative wave of the wand.

Tram Nguyen, co-executive director of New Virginia Majority, summed up the argument for boosting the minimum wage: “We need to give working people opportunities, so that they don’t have to make the hard choice between food on the table or a roof over their head.”

Liberals feel sorry for people in poverty, so they mandate higher wages. My only question: Why stop at $15 an hour? Why settle for a mere “living” wage? Why not $30 an hour? Why not mandate a comfortable middle-class existence for everyone? 

The reason that people aren’t clamoring for a $30 minimum wage is that even liberals understand that hiking the minimum wage so far above what an employee can command in the labor market would trigger a massive loss of jobs. Employers will not pay $30 for an employee who delivers only $7.25 in value. By settling for a $15 minimum wage, the maestros who would fine-tune the economy are gambling that the number of displaced jobs will be relatively few in number, and that the gains in higher wages will outweigh the wages lost through lost jobs.

Ironically, the market is lifting wages without the need for government intervention. Thanks to strong economic growth nationally, wages are increasing — and the strongest gains are among lower-income workers. Wrote the Wall Street Journal back in October:

The lowest-paid Americans saw weekly earnings grow more than 5% in the second quarter from a year earlier, more than the national median gain of 1.7% for all workers, according to a quarterly survey of households produced by the Labor Department.

In places like Northern Virginia, where the overall wage level is so high that hardly anyone is paid the minimum wage to begin with, a $15 minimum wage might barely be noticed. The differential between a $15 minimum wage and the market wage would be relatively small, hence less destructive to job creation.

However, a $15 minimum wage would create a huge gap between mandated wages and market wages in low-wage, low cost-of-living regions of the state, especially rural areas like Southwest Virginia and Southside Virginia. The effect would be disastrous.

I can’t begin to imagine why Norment and Wagner voted in favor of the bill. Maybe they figured it would be defeated in a full Senate vote… or go nowhere in the Republican-dominated House of Delegates. Maybe they’re running scared of an impending Democratic majority and think that adopting Democratic priorities will avert the inevitable loss of power. Or maybe Republican leadership is just ignorant of basic economics. I don’t know.

Whatever the reason, I’ve got to wonder: If Republicans can’t embrace market-based policies, what’s the point in voting for Republicans? You might as well go full Social Justice Warrior and vote for Democrats.

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22 responses to “Senate Committee Passes Rural Job Destruction Act

  1. Games are being played. The bill made it to the floor just to get all 40 members on the record, I suspect. Saw at least one GOP senator out in the hall, conveniently missing the vote.

  2. Here come the robots. Major grocery retailer Giant is putting a robot in all of its stores to identify hazards and report the problems to employees. Just a start. https://wtop.com/food-restaurant/2019/01/robot-roll-call-giant-stores-getting-mechanized-helper-marty/

    In five years, how many office buildings will use a robot cleaning crew and a couple of humans? How long will it be before robots take to farm fields?

    My biggest fear is that a high minimum wage will dry up jobs for teenagers. My son started bagging groceries at Giant when he was 14. He learned many job and human relations skills that serve him well today.

  3. There are dueling studies on this, here is one that shows raising the minimum wage “workers’ earnings went up while job growth held steady or improved, according to a new study from Berkeley’s Center on Wage and Employment Dynamics.” http://nymag.com/intelligencer/2018/09/study-minimum-wage-hikes-increase-pay-without-killing-jobs.html
    https://www.bloomberg.com/news/articles/2018-09-06/higher-minimum-wage-boosts-pay-without-reducing-jobs-study-says

  4. Dear Jim,

    “Argentina, here we come!” Oh, the demagoguery! Barnum was right about a sucker being born, or imported, every minute. Mencken said that Democracy is the theory of Government that says that the average deserves what he gets, good and hard. Certainly proletarianized democracies can’t last, perhaps propertied ones can, however, as Jefferson favored.

    Sincerely,

    Andrew

  5. Increasing the minimum wage does not destroy jobs if that law applies to all businesses.

    There will still be McDonalds and Subways and Walmart workers, etc.

    But costs will go up – yes – but how much? How much more will a cheeseburger cost?

    How many less lottery tickets will be purchased?

    Here’s the reality. $15 an hour is $31,200 a year.

    $7.25 an an hour is about 15K a year.

    Now take a look at the Federal Poverty level at 138% – $16,753

    138% is the threshold for working folks to be eligible for Medicaid.

    Besides that, the Child Tax credit, Earned income credit, food stamps, subsidized housing, etc are all provided to low-income folks and paid for by taxpayers – right now – today.

    What is better? entitlements or minimum wage?

    Will robots replace folks over the minimum wage?

    Any more or less than it replaces much more expensive factory workers?

    Maybe – but all those folks who earn a lot more than minimum wage are at even higher risk of being replaced by robots including white collar types.

    This is another one of those issues where economics “theory” where all other factors are ignored – doesn’t work in the real world where all these other factors like entitlements are also in play.

    It may be a question of liberals “feeling sorry” but it’s also a question of Conservatives letting their make-believe world of govt and markets get in the way of the realities.

    In their world – Canada has socialized health care and that’s why Rand Paul does not go there to get health care!!!

    • Larry – if the minimum wage were increased to $15 per hour, do you think that any entitlements would be restricted for those earning that wage or more? If not, why not?

      BTW, Senator Paul is paying the full cost of his surgery. Lots of people leave their country for health care because of a number of factors including the prestige of specific practices and the non-availability of certain treatments or drugs in their home countries.

      • @TMT – yes … if you look at the income – it puts them above the threshold for a lot of entitlements.

        Yes.. Paul IS paying for his health care by folks like him and those who agree with him say that countries with universal health care are socialist and their health care suffers because their medical facilities are not as good as in non-socialist countries like ours!

        If we have the “best medical care in the world” – why is Paul going elsewhere?

    • “Increasing the minimum wage does not destroy jobs if that law applies to all businesses.”

      If that is true then, as Jim said, why don’t we just raise it to $50 an hour and solve all poverty issues in one fell swoop? Heck, make it $100 an hour or more.

      I think people often gloss over some of the points Jim writes about. Jim points out the significant cost of living differences between areas of Virginia. I was going to compare cost of living in Bristol, VA (reference the recent casino post) with Alexandria, VA (reference Amazon HQ2 posts), but I could not find Bristol in a calculator. Defaulting to Danville vs Alexandria, then, the calculator shows Alexandria is about 70% more expensive than Danville. With that in mind, does anyone really think a one-size-fits-all minimum wage would impact the two areas in the same way? $7.25 in Danville equates to $12.33 in Alexandria. (And this is exactly why most jobs in Alexandria have to pay more than minimum wage.)

      Someone pointed to research that has shown no employment impact in localities. I would point out that these studies are usually on localities (e.g. Seattle), and not areas with major differences in cost of living. The outcomes are usually different when applied to areas with major differences.

      The $15 per hour cited is arbitrary and comparatively too high. If you factor average cost of living (PPP), a US $15 U.S. would be higher than that of other OECD countries.

      • Izzo – that’s the essential bogus argument that conservatives use to argue against the minimum wage.

        I could ask why do we pay entitlements when people can earn a wage and your answer would be what?

        This is what I’m talking about when I say that pure theory works just fine until you put it in a real-world environment and it does not.

        If $15 an hour is arbitrary, how about $7.25 – why not $2.00 like you’d actually see in a lot of other countries?

        What happens to business products and services when their core expenses go up?

        what happens when the price of gasoline or electricity or other core components of a product or service increase in price?

        labor costs is just one – but if the increase applies to all businesses then what happens is they focus on productivity – and this applies to ALL businesses at all levels of the economic strata and this is why you see US workers making $30 an hour thrown out of work by overseas workers or robots…

        • Larry, I can’t say I follow your argument. In a “real world” environment, you still need to factor what the impact to employment would be of a 100%+ increase in minimum wage. This is in addition to factoring impact to entitlements. As loathe as I am to defend the dismal science, I doubt any serious economist would miss the point on entitlements you say they cannot see.

          You cannot assume there will be no change in employment. In Denmark for example, the minimum wage was increased by about 40% at age 18, which has been accompanied by a sharp 33% drop in employment. As I said, the studies that have shown little change in employment with higher minimum wages are focused on localities with high cost of living and high prevailing wages like Seattle and LA.

          In the case of Denmark, the minimum wage at 18 is about $14.50. But cost of living in Denmark is much higher. If you compare Copenhagen to Alexandria, purchasing power is 39% lower, so the $14.50 translates to $8.85 in Alexandria, and would be lower still compared to the rest of Virginia.

    • I’m with Izzo on this one. Raise the minimum wage above the going rate for the local economy and those forced to pay it (and pushed beyond what their business can afford) will simply close down. The entrepreneurs who ran those businesses will cut payroll and automate, change to another product, or leave the jurisdiction. The end result: less jobs.

      Businesses with larger semi-skilled workforces, the very ones you most want coming to an economically-distressed area, are hardest hit. The problem is particularly invidious for people new to the workforce, like teenagers, who need the work experience (and the resume entry) but can’t get that first job because they are riskier and need more training.

      So why pay “entitlements” rather than enforce a minimum wage? Hopefully there’s some tie between the entitlements and a minimum lifestyle that is below what having a job would afford. If the entitlements offer more than a job, the local economy has bigger problems.

  6. The research on the effects of raising the minimum wage is mixed. And, in regard to Jim’s point, that research has not included rural areas because most of the increases, for which enough time has passed to measure any effect, have been in cities.

    At the end of my thinking on this issue, I get back to Larry’s figures: at $7.25 per hour, a person would earn $15,080, and that would mean working 40 hours a week, every week, with no holidays. Just from what I have heard that even modest apartments rent for, I don’t see how anyone could make it on that income. And they can’t; hence, food stamps, rent subsidies, etc.

    I am sure there has been a lot of wailing and gnashing of teeth, along with dire predictions of dire economic consequences every time the federal minimum wage was increased. But, it was last raised in 2009, and the economy, along with job growth and corporate profits, does not seem to have suffered in the interim.

    Overlooked in this discussion has been the static aspect of the minimum wage. It is now $7.25, but compared to 2009, in purchasing power it is $6.19, a loss of 9.6%. And, if you cast way back, in 2016 dollars, the highest value of the minimum wage reached a peak of $8.68 in 1968.

    In response to Jim’s question of why stop at $15, let’s reverse the logic: Would you favor doing away with a minimum wage altogether and allowing the “market” to set the wage?

    Finally, I am sympathetic to the concern that raising the minimum wage will dry up jobs for teenagers. (Way back in my youth, I, too, bagged groceries and look fondly on that experience.) However, parents don’t have to worry. Virginia law exempts the minimum wage requirement for employees under 16 and for employees between 16 and 18, who are full-time students and work 20 or fewer hours a week.

    • We hear employers in the Metro D.C. area, especially in Virginia, struggle to find qualified employees. That factor alone should be causing wage increases locally.

      But those at the bottom in terms of wages and skills face competition from those not authorized to work in the United States. And let’s be honest, a company that hires someone who is not allowed by law to work in the United States is not going to worry about paying below-minimum wages. So long as we have open borders and ignore enforcement of applicable laws against employers, we are going to see downward pressure on wages for unskilled labor.

      Democrats want votes and Republicans want dirt cheap labor. A pox on both their houses.

  7. The purpose of the Earned Income Tax Credit is to bolster the income of this group. Likewise the idea of expanding the Virginia version to include a cash-back component if the credit allowed is higher than the tax owed. Nobody is talking about (or probably thinking about) the interaction of that with the higher minimum wage, but the higher these folks get paid, the smaller their EITC. If one or the other happens, I’d rather see the minimum wage work its way higher. But clearly it reduces the supply of low-wage jobs.

  8. You are right about no one (at least in the General Assembly) talking about the interaction between the minimum wage and EITC. Because most issues are addressed in discrete legislation to be taken up in a compressed time frame, these interactions are often ignored. This is a result of the General Assembly no longer using the time between sessions to go into complex issues in depth—a continuing lament of mine, but that is another story.

    I had considered bringing up the EITC in my earlier comment, but deferred comment, primarily due to my lack of familiarity with this area. I agree with you in preferring an increase in the minimum wage over the proposed changes in EITC.

  9. re: ” I agree with you in preferring an increase in the minimum wage over the proposed changes in EITC.”

    DITTO!

    If you push this from entitlements to the market – the market will focus on productivity and not higher taxes for more entitlements.

    somehow – when opponents argue this – they just totally ignore the real world aspects and focus entirely on pure economic theory – which essentially allows no outside influences to affect the basic supply/demand theorems.

    If we had no entitlements at all – that theory would work better but even then – not perfect, because there are other influences, not the least of is govt and regulations.

    Don’t get me wrong. I totally believe in supply and demand. it’s fundamental to how the world does work but do note that some of the strongest believers just totally hate dynamic tolling of roads… that’s “wrong”… because the govt collects taxes and is supposed to provide “free” roads… this coming from the same folks who argue “free markets” for the minimum wage… 😉

  10. Not sure I understand the logic here. Virginia is supposed to keep wages low according to what people in the poorest part of the state make? Who benefits? Shareholders and business owners. It is why they want to keep unions out, too — right to work and all that.

    Not exactly 21st century thinking.

    • Peter, labor unions are nasty. When I lived in Minnesota and worked at Montgomery Ward, I had to join a union (or pay the union dues equivalent). I grew up thinking unions were for working people.

      Every year after inventory, the part-timers would get laid off for six weeks or two months. OK, part of the job. But while my pay stopped, liability for union dues didn’t. So when I came back to work in late March or early April, I was in debt to the Union for back dues. For the several year period I worked at Wards during high school and part of college, my first check or two went 100% to taxes and union dues — back and current dues. The alternative was to ask the union to suspend my membership during the layoffs and pay a $75 fee when I went back to work. Considering that I made less than $2.50 per hour (union shop-good wages) and needed the money to go to school, I couldn’t afford suspension and had to work a week or two with no money going to me.

      I’ve hated labor unions ever since. They care more about themselves than the members. Everyone should have a right to join or not to join a labor union. We need a national right to work law. Better yet, a constitutional amendment.

  11. Our General Assembly once again proves its incompetence by ignoring cost of living differences across Virginia. The economic illiterates of Richmond wave their manicured hands at difficulties that would come with multiple minimum wages across the state. However, the cost of living difference are real …

    http://statchatva.org/2013/05/31/regional-cost-of-living-adjustments-for-poverty-rates-in-virginia/

    Washington Met at 118.6, Danville at 89. Meaning that $15 in the Washington Met equals just under $20 in Danville. This difference is only exacerbated by the differences in disposable income between the Washington Met and Danville. As any good liberal knows the marginal utility of money decreases as you acquire more of it. Conversely, the marginal utility of money increases as you have less of it. In a place like Danville (where there is precious little disposable income compared to NoVa) slight increases in price result in outsized drops in demand (called the elasticity of demand). A mandatory doubling(+) of the present minimum wage will increase prices for many things in both NoVa and Danville. In NoVa most people earn more than minimum wage no matter what they do so the percentage price increase is likely to be smaller. The significant disposable income in NoVa will make it easier for people there to pay the additional “minimum wage tax” included in the cost of goods and services. Not so Danville. In Danville more people earn the minimum wage so $15 will be a true doubling of costs. The dearth of disposable income will make any price increase hurt more than on average in Virginia and will decrease demand by more than average in Virginia. Businesses will cut back or close. Jobs will be lost.

    The answer? Let the municipalities / counties make their own decisions on minimum wage (above a state minimum, like $8.00 for example).

    Once again, the bourbon and branch water elite who converge on Richmond this time of year to fill their pie holes with expensive Dominion-funded dinners at Bookbinders have once again failed to grasp simple economics.

  12. Too Many Taxes,
    I guess we all have labor union anecdotes for better or worse. Mine was in the 1970s when I was a reporter at The Virginian-Pilot in Norfolk. At the time, management ran a low-paid sweatshop with not many benefits and lots of demands. Bright young reporters were anxious to move up the food chain to larger, more prestigious papers and management worked them hard — very long hours and lots 0f competition and criticism. The Pilot was represented by The Newspaper Guild and management’s goal was to get membership to decertify the union. Their ham-handed efforts backfired and they stirred more resentment. I was a negotiator for the union and while we couldn’t strike we did picket. It was a very toxic environment and people active in the union were targeted for bad performance reviews (regardless of how many journalism awards you’d win). Like myself, a number of people left. But we didn’t lose. The union was not decertified.

  13. Peter – I have no problem with private sector people joining a labor union if that is their desire. I have no problem with collective bargaining and unions’ representing members in disputes. And in the private sector, I have no problem with strikes. (I agree with FDR that labor unions have no place in the public sector.)

    But I do have a problem when state law requires people to either join a labor union or pay the dues equivalent. Where’s the free choice?

    I worked for Northwestern Bell, a unionized company, in two right-to-work states, Nebraska and Iowa. In both states, most of the non-management people belonged to the Communications Workers of America. But there, the Union had to give workers sufficient reasons to join. And an individual who didn’t believe the benefits were worth the dues did not have to join. Similarly, someone who didn’t like unions or their politics didn’t have to join.

    Labor Unions in the United States operate on the basis of coercion. That’s wrong. We need a national right-to-work law and state laws that prohibit collective bargaining concerning public sector employees.

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