Hidden variables of a minimum wage hike

The minimum wage hike juggernaut is on a roll. Workers are talking about it. Local lawmakers are meeting about it. The Saipan Chamber of Commerce has issued its official position on it. The incoming Democrat-led Congress is, in fact, already drafting a bill to boost it, with a provision applying the increase to the CNMI, according to Washington Rep. Pete A. Tenorio. He said the bill under consideration would gradually raise the local minimum wage rate from $3.05 to $5.15 an hour. The increase would be done in 50-cent increments beginning six months after the bill is enacted. Is that a good thing or a bad thing? Workers, of course, would argue for it, while employers would just as strenuously oppose it. With them are multitudes of supporters and opponents, both with shrill and convincing arguments on the merits or shortcomings of raising the minimum wage rate. Just as with any other contentious issues, however, the matter is much more complicated than it seems and it appears to me that people are neglecting to factor in these considerations when debating the issue.

One of the most common arguments for raising the minimum wage in the CNMI is to entice more resident workers to move to the private sector. It is being argued that raising the minimum wage would make private sector work more attractive to resident workers, thereby lessening the pressure on the government to provide jobs to these people. This, I believe, is a fallacy, a flawed argument from the get go. Yes, a good pay is certainly one of the factors why people apply for jobs and keep jobs. However, it is not the only thing that matters. In fact, surveys have shown that pay usually comes later down the list of what keeps people at their jobs. At the top of the totem pole is prestige, security, chances for advancement, training opportunities, and all such other intangibles that do not necessarily have dollar values. Really, if you think about it, if they suddenly raise the minimum wage, would you leave your job at a government agency and apply to become a sewer at a garment factory? I think not. Not only do you get to do less, the job standards is also lower in the government in that your performance will not be measured by how many shirts you’ve sewn in the last eight hours. Even the unemployed are choosy about the jobs they will apply for and, if they don’t have the skill and work ethic to man the factory floors, that only doubles the reasons why they won’t apply for those factory jobs in the first place.

Why do you think there is an extreme shortage of workers in the American construction industry? The pay rate of masons, carpenters, and other skilled positions are very competitive—double and even triple the federal minimum wage of $5.25—yet the industry sorely lacks people to fill the demand. The industry is now even offering generous monetary incentives just to attract more workers to their ranks, yet the shortage is still there. Why do you think is that? It is because there is less and less number of people going into the construction business. They’d much rather wear a suit and tie and sit at a desk, even if the pay sucks, rather than perform any sort of manual labor. The same holds true for the generous incentives being given to nurses and teachers stateside. Is it enticing more Americans to go into the nursing and teaching industries? Not really. In fact, the ones benefiting the most from these increased monetary awards are the foreign workers, the only ones who are willing to do the jobs that most Americans don’t want to do. I tell you, prestige is a pretty compelling reason to stay on at a job, so raising the wages for a garment sewer is not going to automatically make government-paid employees up and leave their jobs to join the private sector.

Secondly, raising the minimum wage is going to raise the wages of not just those earning minimum wages but also the wages of people who are currently earning at rates above the minimum wage. Economists call this the ripple effect. Imagine for a moment that you are earning $4.50 right now. That means that you are either a rank-and-file government employee or a nonresident worker holding a professional position. If the current minimum wage of $3.05 is raised to $5.15, your wage rate would be overtaken by the minimum wage earners. That means that, at a minimum, your rate would be adjusted to $5.15, right? Yet, that makes you a minimum wage earner, which wasn’t your original position on the totem scale of wages. When the minimum wage was at $3.05, you were $1.45 higher. You would not be content with being merely at $5.15; you would push for at least $6.60. Those whose original rate was at $6.60 wouldn’t want to be on the same level as your new level and would push for a higher rate. And so on and so forth.

As you can see, increasing the minimum wage will put more pressure on employers to increase the rates of not just the minimum wage earners but also the rates of those employees above them. The Economic Policy Institute, a Washington think tank, underscored this when it said the ripple effect tends to compel employers to raise wages for workers who make above the new minimum. That’s not even taking into consideration the possible inflationary effects of a botched wage hike. A drastic increase of money circulating in the economy tends to bump up prices, as the market tries to achieve equilibrium between supply and demand. This will further negate the effects of a wage hike on the consumption capacity of low-wage earners.

This is not to argue for or against raising the minimum wage here in the CNMI. In the gritty world of a minimum wage worker, a wage increase is a big deal and would be much welcome. Business leaders in the CNMI have, in fact, acknowledged the need to raise the minimum wage. I am merely pointing out these factors that never seem to get that much airplay when people start talking about the minimum wage. In a stagnant economy, one needs to be as careful as possible when talking about any moves that could further increase the cost of doing business. Otherwise, we might end up with no business at all, and what would be the point of a minimum wage hike when there’s no one to pay you that?