Minimum wage could be both blessing and curse for employees

October 18, 2022 4:00 am

(Joe Raedle/Getty Images)

In 2014, Nebraska voters passed Initiative 425 by a margin of almost 20 points (59.47% to 40.53%). This initiative raised Nebraska’s minimum wage above the federal minimum wage, going from $7.25 to $8 on Jan, 1, 2015, and then to $9 on Jan. 1, 2016.

Once again, Nebraska voters will weigh in on the minimum wage, as supporters of a petition effort collected enough signatures to put the question on the ballot this November. Initiative 433 would raise the current $9 minimum wage to $10.50 in 2023, $12 in 2024, $13.50 in 2025, and finally, $15 on Jan. 1, 2026.

In an era of inflationary prices, increasing the minimum wage seems to be a logical way to mitigate financial hardship for lower-wage workers. Still, not all economic theories agree on increased minimum wage value (or potential harm) to the worker or business.

For much of the 20th century, economists viewed minimum wage increases as disadvantageous to young and low-skilled workers. The belief was that those workers might have trouble getting jobs if employers had to pay them an amount comparable to what they could pay more experienced workers. If you have difficulty finding a low-wage job as a teenager, entry into better-paying jobs later is bound to be more difficult. Indeed, many of us have known unpaid “interns” who are working to develop a resume in hopes of building their opportunities.

Significant increases in minimum wages may also threaten to distort the labor market as it puts pressure on employers to raise the non-minimum wage rates of those already working for them to account for their experience and skills above the minimum wage level in their employ.

Common sense suggests that employers will not willingly employ workers at a loss, so they will either employ fewer workers (if those workers can turn out the same amount of “product” for the company to sell) or will raise their prices to the consumer to ensure that they are not operating at a loss. In the latter instance, the increased minimum wage could spur higher living costs for all consumers, including lower-wage earners who were supposed to be helped.

The other side of the coin, however, suggests that current minimum wage rates may keep wages artificially low — beneath what actual market forces would require employers to pay to attract employees — and create more significant profit for owners and shareholders, which the employees are not sharing in.

A minimum wage could be both a blessing and a curse for employees. In a tight labor market, promising employees may garner higher starting wages without a minimum wage setting the floor. Of course, when there is an abundance of potential employees on the market, a minimum wage ensures that those workers on the market know that they don’t have to try and undercut competing laborers for a lesser salary, given the statutory floor.

Perhaps the most concerning part of a statewide minimum wage increase is that the rise fundamentally ignores the significant differences in labor markets and job opportunities throughout our state. Omaha and Lincoln are different from Deshler, Burwell and Valentine. Those differences in labor markets and job opportunities ought to allow both workers and employers more flexibility than a growing minimum wage would call for.

The real free market solution to the potential problems of the minimum wage question is to have no minimum wage and let the market decide. If employers are having trouble attracting workers, they will pay more; if business sales volume is low, they’ll figure out how to make do with the employees available to them at lower wages or how to turn a profit through alternative means, like increased automation or purchasing business inputs from lower-cost sources.

Admittedly, the elimination of a minimum wage is not likely to occur anytime soon. There has been a federal minimum wage since 1938. Since at least 1968, many states (and some counties and cities) have implemented minimum wages for their jurisdictions higher than the federal rate.  The inevitability of a continuing minimum wage doesn’t mean, however, that we shouldn’t consider the potential for harm to the labor and business markets before making further changes.

Next month, Nebraska voters will have to consider whether it will work to the advantage or disadvantage of employees, employers, and consumers to raise the state minimum wage further.

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Laura Ebke
Laura Ebke

Laura Ebke is a lifelong Nebraskan who has lived in Crete for more than 25 years. She has a doctorate in political science from the University of Nebraska, serves as a senior fellow of the Platte Institute and previously served for four years in the Nebraska Legislature and 12 years on the Crete school board. She is a wife, mother of three and grandma of one.