Maybe Conservatives Should Rethink a $15 Hour Minimum Wage- Crunching the Numbers

Maybe Conservatives Should Rethink a $15 Hour Minimum Wage 

By Thomas M. Cole, JD  Author of 200 Years of Central Banks

The current White House resident claims, It’s time to Give America a Raise…

Obama’s got his cell phone and pen ready with a pliant media standing behind his every word. On the other hand Republicans and conservatives are battling against raising the minimum wage for a variety of reasons. Mostly claiming it will hurt job creation, force business to leave and generally drain the economy due to high labor costs.

So what if America’s lowest paid workers get a raise? Will it destroy USA competitiveness, or cause BurgerShack to automate it’s facilities? Does anyone really care if a burger costs 20% more?

Consider these hypotheticals.

Joe’s Place hires Fred, an immigrant, for $8.00/hour cash. Since the owner pays cash he avoids paying a number of other taxes on the books like FICA at 15% and Workers Comp about 8% for restaurant workers. Mandated health care may be 20% of wages paid and State/Federal taxes which would be 10% state in California and say 12% Federal. So we have a grand total of 45% tax savings if restaurant hires workers for cash.

To legally hire an undocumented worker so he takes home $8/hour requires restaurant to pay $6.54 in government expense/tax plus $8.00 in wages. A grand total restaurant expense of $14.54/hour. That times 50 weeks is a yearly expense of $29,080.

Paying this same employee under the table in cash at $8.00 is a yearly cost of only $16,000. So for restaurant to pay Fred on the books costs an additional 81.75% more.

It’s no wonder businesses pay cash when they can because a business will have an 81.75% increase in labor cost to pay a worker on the books. The only business savings is a 100% write off on the total expense.

A cash employee of $16,000/year would create income taxes for employer of 30% and that’s cheaper than 81.75% employment taxes, even with the write off against income.

Increase in minimum wage from $8.00 to $15.00. What results?

Now the totals look like this…

Fred under/the/table wages/year at $8hr = $16,000…and at $15/Hr = $30,000 cash.

…plus government costs and taxes (46%) for labor/year = $24,525

 

Total cost for on the books labor at $15/hr = $54,525

Not bad for a burger flipper.

The increase from $8/hour cash worker, to $15/hr take home on the books labor cost, is a whopping 70.65% increase in labor costs.

Few businesses will be able to pay these kind of wages and not get a write off, and this is exactly what the government is counting on.

Business will have only one way out. The answer is to raise prices and compensate for the 71% increase a $15/hour minimum wage hike would create.

Will Business Expect more from Higher Paid Workers

Businesses will write this increase off as a business expense and raise prices…but two questions come to mind.

1) What would employers expect from these new high cost workers?

2) What type of new employees would be drawn to a $15/hour take home wage?

At these higher wages employers will expect more than the same old workers.

Employers will expect clean cut, well spoken locals as opposed to super hard working undocumented workers that can’t write, speak or understand English. If this assumption is true, it would lead to more employment for out of work college grads and other unemployed American citizens.

As to the second point: Would this wage be enough for Americans to do the work they wouldn’t do at $8/hour cash?

At $15/hour take-home with healthcare, American citizens would clearly have more incentive to outwork their undocumented counterparts. Since this wage is more than can be made on welfare, it may be enough for college grads who are living at home with parents to take plunge at real job.

Public Policy and the Results of Higher Wages

$15/hour with healthcare is calculated to get America’s young people out of their parents basements, and into the taxable workforce. This will accomplish a number of laudable goals.

1) The treasury will benefit. These new higher paid workers are now into higher tax brackets and will start paying taxes.

2) These new taxpayers will now have incentive to vote against higher taxes because they are now paying them.

3) These new higher incomes will remove workers from government benefits. Thus fewer people on welfare and health care benefits, and more people paying taxes.

Some 3.3 million workers in the USA are at minimum wage according to Fact Check…

http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-minimum-wage/

Add to that the number of illegal workers which is estimated to be 8 million and we have say 12.5 million workers affected by a mandatory $15/hour minimum wage law.

http://www.fairus.org/issue/illegal-aliens-taking-u-s-jobs

Studies show undocumented households consume $14,000 a year in government benefits.

http://www.heritage.org/research/reports/2013/05/the-fiscal-cost-of-unlawful-immigrants-and-amnesty-to-the-us-taxpayer

Higher Wages Create $544B Return to Gov 

Assuming above figures we multiply 12.5 million undocumented workers times

$14,000 per household welfare costs for the undocumented and we find welfare expense of $168 Billion a year to finance undocumented workers in the USA.

If we now force employers to pay a legal taxed minimum wage of $15/hr to these 12.5 million people, that costs employers $681Billion in wages and employment expenses.

These new higher paid workers will be off welfare because they make too much. Also they and their employers will now be paying taxes to various government agencies. Using the previously determined percentage of 46% government employment expenses…

With $681Billion in new $15/hour employment wages plus government expenses of 46% equals $376Billion returned to gov agencies. Add in the welfare savings of $168B and we have a net of $544B to the gov/taxpayer. Business raise prices to cover it and thus the new expenses are born by all consumers.

Conclusion

A new $15/hour minimum wage will cost employers 70% more, or about $500B more, but will save the taxpayer/government a near equal amount. Of course we should concurrently implement an e-verify worker system to eliminate fraud.

With the equivalency of costs, it makes sense for Republicans and conservatives to embrace the issue of higher minimum wages as a winner. Despite its whiff of socialism, plus these benefits:

  • Attracting more voters to conservative principles
  • Reducing welfare expenses
  • Removing the issue of low wages from the progressives
  • Taking the undocumented out of the shadows
  • Increasing gov revenues
  • Lower welfare dependency
  • Increase public interest in tax rates, thus helping conservative cause of a lower tax government

Americans should realize as NAFTA and other trade agreements have sent American jobs to Mexico and overseas, and as government floods in new foreign workers it also bears some responsibility to fill the gaps in our middle class. Further noting that a high minimum wage will harm USA manufacturing business and so appropriate tariffs would be fair to preserve those jobs.

Check out my latest book 200 Years of Central Banks  on Amazon and thanks for your support.. TMC

 

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