Suppose that instead of discussing an increase in the minimum wage by debating whether or how much an increase from $7.25 per hour to $10.10 would affect employment, future hiring, hours worked, etc. we thought about that increase in the minimum wage as a tax on employers hiring unskilled workers as follows:
Increasing the minimum wage from $7.25 to $10.10 per hour would be a $2.85 “unskilled labor tax” per hour on employers, which would be an “unskilled labor tax” of $114 per week and $5,700 per year per full-time minimum wage worker.
When thinking of a minimum wage hike as a $5,700 annual tax per unskilled worker (and $6,170 with additional payroll taxes, see below), is there any doubt that an “unskilled labor tax” that high wouldn’t result in predictable changes in employer behavior that would have adverse effects on workers with no or few skills? Is there any doubt that business-minded employers would have to take steps to minimize the impact on his or her business of an annual tax of $6,000 per worker? Typical strategies to offset some of the tax might include reducing the number of current employees, reducing future hiring, reducing the number of hours employees are allowed to work, substituting skilled workers for unskilled workers, investing in automation, reducing non-monetary fringe benefits, etc.
Does thinking realistically about the proposed minimum wage increase to $10.10 per hour alternatively as a $5,700 annual “unskilled labor tax” make minimum wage proponents less enthusiastic about that increase and its inevitable adverse effects on unskilled workers? Maybe not, but at least honestly admitting that a $10.10 per hour minimum wage is exactly equivalent to a $5,700 annual “unskilled labor tax” should help us all understand the significant impact of that kind of increased cost on America’s businesses (many small and family-owned) employing unskilled workers. And let’s all understand that when Obama and other politicians talk about a $10.10 per hour minimum wage, they are really talking about a $5,700 annual tax on employers hiring unskilled workers. So from now on when you hear the term “$10.10 per hour” (According to Obama, “ten-ten” is so “easy to remember”) think instead of a $5,700 annual tax per unskilled worker (and $6,170 with additional payroll taxes, see below) and you’ll better understand why artificially raising the minimum wage through government fiat is a very bad idea.
Update 1: Dwight Oglesby points out in an email that the total “unskilled labor tax” to an employer from a $10.10 per hour minimum wage hike would be even greater than $5,700 because of the employers’ contribution to FICA (6.2%), Medicare (1.45%) and the federal unemployment tax (0.6%). After accounting for those additional costs to employers, the $10.10 per hour minimum wage would bring the annual “unskilled labor tax” up to $6,170.
Update 2: In light of the discussion above, I’d like to propose slightly modifying the name of the current minimum wage bill as follows: The Fair Minimum Wage Act (H.R.