Minimum wage, the cost of living and the cost of doing business, even nonprofit businesses

As Mark Perry, AEI scholar and University of Michigan economist, points out, there’s no science to setting a minimum wage.

But where does a minimum wage of $10.10 (or $9) per hour come from? Economic theory? Economic reasoning? Economic logic? Regression analysis? No. It comes from….. well it comes from….. OK, to be really honest, it’s just a made up number by politicians, with no basis in economic reality. Economists who are minimum wage proponents will try to justify the arbitrary number “picked from the air” by politicians and talk about inflation-adjusted comparisons to previous years or decades, like the inflation-adjusted high of a $10.66 per hour (in 2013 dollars) minimum wage in 1968. But why is that the “right” wage and the “right” year to use for comparison? It’s just another arbitrary minimum wage from another era.

He illustrates the follow of a national minimum wage with this chart that I’ve copied from his blog post.

COLA by cities


Note that minimum wage in Seattle would have to be $13.15 to be equivalent to a $10.10 wage in Des Moines. Or, flipping it, to be the equivalent of $10.10 in NYC, the Seattle wage would be $5.36. Read Perry’s post for additional insight into the arbitrary nature of wage-setting. And consider as well the significant cost-of-living differentials in our large and diverse state.

There’s the cost of living and the cost of doing business. And the latter has some business owners in Seattle’s Capitol Hill neighborhood concerned. So too are directors of social service agencies in the city. Seattle Times columnist Danny Westneat interviews one of them in another must-read.

“I’m something of a 1960s radical,” Hobson says, “and I don’t think I’ve ever seen such a rapid societal shift as the $15 wage.”

There’s only one hitch, and it’s a doozy: He can’t pay it.

…“In principle, I’m all for the higher wages,” Hobson said. “But I can’t pay it. Without some major infusion of cash from the city, I would have no choice but to cut services.”

I’m sympathetic, to a point. I just fail to understand why businesses struggling to compete in the marketplace are any less deserving of consideration than the social service folks. Costs matter. To everyone. And mandating arbitrary hikes in wage rates will have predictable consequences.