Earlier this week I blogged about Initiated Measure 17, which has to do with patient choice. Now it is time to look at the other Initiated Measure on the ballot: IM 18. IM 18 was placed on the ballot to raise the minimum wage and increase the minimum wage each year automatically. The text of the IM and he actual changes to law it would make can be read at the end of the AG’s explanation.
This IM would change the basic minimum wage from $7.25 to $8.50. Tipped employees have their minimum wage changed from $2.13 to 1/2 of the basic minimum wage; that would basically mean the starting minimum wage for tipped employees would be $4.25 if this IM is passed. Of course wage plus tips must still equal the basic minimum wage (if they don’t, the employer has to kick in the difference). Additionally this IM would put the minimum wage on an auto-pilot cost of living increase that is tied to the Consumer Price Index.
I’ve seen proponents of the minimum wage increase focus on promoting economic fairness and building the economy. It’s been argued that it is unfair for unskilled labor to be making such meager wages while CEO’s are making hundreds of times the amount of money. Additionally I’ve seen it argued that putting more money in the hands of those working minimum wage will increase economic activity. Some of the statistic put out by the Pro IM 18 website include:
- 62,000 working South Dakotans will see an increase in earnings if we raise the wage
- 78% of those folks are over the age of 20, often with a family to support
- 55% of those who benefit are women
Groups speaking against IM 18 seem to be focused on the never-ending increase that included in the IM. According to opponents this IM would hurt small businesses, especially in small towns, the hardest. Opponents of the IM generally use the term mandate, which is exactly what the minimum wage is. In addition, prices will go up while unskilled labor jobs will be harder to find. Opponents of IM 18 say that economic activity will actually be stunted by the passage of this minimum wage increase.
Personally I believe both groups are over-stating their cases (which is typical with a politically charged topic), but I am siding with the opponents in this particular case. I understand why the proponents of a minimum wage increase are fighting so hard. They truly feel this will help poor people in the State of South Dakota and allow some working families to better survive. But I believe the minimum wage is the wrong area to focus in helping poor people out. A better place to focus would be purchasing power. Income is a part of purchasing power, but not an overwhelming part as many believe it is. Other factors that decrease purchasing power more than anything income related include over-regulation, Federal Reserve policies, and inflation. Inflation in particular dramatically decreases the purchasing power of the poor, mostly because the increase in unskilled labor wages has to be made up somewhere. And that somewhere is usually in the decrease of unskilled jobs available and the increase in the price of goods. The very act of increasing the minimum wage to help poor people will in fact decrease their purchasing power and potentially leave them in a worse situation than they were in before the mandated change. Putting the minimum wage increase on auto-pilot will only help to ensure that the purchasing power of poor people continue to decline every year, or at the very least their purchasing power will not increase as much as it would appear.
On November 4 I will be voting against IM 18. I am not out there trying to stop people from voting yes on IM 18 however. I have a feeling IM 18 will pass because the US has been blindly following Keynesian economic theories for the last century. Even though I believe the minimum wage increase will hurt the poor more than help, I simply believe over-regulation and inflationary policies of the Federal Reserve are hurting the poor even more. If any IM’s come out to tackle either of those issues I could see voting yes.
PS. I almost forgot about this video. Earlier this year Kristina Bell released a minimum wage video that went semi-viral. Remy over at Reason TV released a great rebuttal. In this video he brings up unintended consequences.
PPS. Since this post mentioned economics it is a good time to once again view the videos of Keynes (Keynesian Economics) vs Hayek (Austrian Economics). Since Keynes promoted spending without looking at consequences or human motivational factors it is what most politicians and economists follow. Those of us who believe in looking at unintended consequences and human factors tend to follow Hayek. The infographic in this post can show more differences between Keynesian Economics and Austrian Economics. No matter which line of economics is followed, it should be noted that both schools of thought are pure theory. There are no true “laws of economics”.