The Federal minimum wage was first enacted under Franklin Roosevelt in 1938 under the Fair Labor Standards Act. According to the US Department of Labor, on July 24 the Federal minimum wage is scheduled to increase 10% from $6.55/hour to $7.25/hour, which will impact 29 states that have state minimum wage rates below $7.25. This increase, as well as the 12% increase last year from $5.85 to $6.55, was mandated by a bill passed by Congress in 2007 after years at $5.15. This raises at least two issues:
1. Why is the Federal government involved in establishing minimum wage rates? This is but one example of Federal intrusion on states rights. Those of us that do not buy into the living, breathing interpretation of the Constitution have difficulty finding authority for it. Furthermore, even if you believe the government at some level should be involved in establishing wage rates, from a practical perspective a one-size-fits-all Federal rate makes no sense. You couldn’t rent a refrigerator box for $7.25 in NYC, but you might be able to survive in Mexico, Missouri. This is exactly why the Founders retained power in the states to deal with issues that do not have equal impact across the entire country.
“Our citizens have wisely formed themselves into one nation as to others and several States as among themselves. To the united nation belong our external and mutual relations; to each State, severally, the care of our persons, our property, our reputation and religious freedom.” –Thomas Jefferson: To Rhode Island Assembly, 1801. ME 10:262
2. With the unemployment rate at a 26-year high and predicted to exceed 10% before year-end by most economists, as well as President Obama, is now the best time to force a pay increase on industries that are dependent on lesser paid workers, restaurants and retailing being the most predominant? Might not such an increase further aggravate the unemployment problem, as businesses currently struggling find themselves having to further trim their ranks in order to absorb the rate increase? Although an increase in wages might keep some workers above the $10,830 poverty level required for certain welfare-related assistance, if that comes at the risk of further increasing unemployment a better alternative might be to defer the mandatory increase until we see significant evidence of economic stability. There is no such evidence today.
Most businesses are deferring wage and salary increases and cutting 401k matches in order to minimize layoffs. If this administration truly wants to create and save jobs (and we’ll pretend for just a moment that you can actually measure the latter), this might not be the best time to force a cost increase on industry.