Ron Unz is a maverick millionaire on a minimum-wage mission.
The conservative Silicon Valley entrepreneur aims to push California’s mimimum wage up to $12 an hour, and like any good Californian he plans to use the state’s ballot initiative process to do it.
Unz, a one-time gubernatorial candidate, expects to start collecting signatures in the next few weeks to get his proposal on the November ballot. It’s a prospect many of his conservative allies do not relish, partly because Democrats have already signaled that raising the minimum wage will be a key issue in their 2014 election push.
Unz thinks his argument is one economic conservatives should embrace. As things stand, he argues, artificially low wages are heavily subsidized by taxpayers, with the working poor receiving $250 billion annually in social welfare payments. The $12 wage Unz advocates, if enacted nationally, would boost low-income wages by roughly $150 billion, he says. Estimates of savings to taxpayers vary, he says, but his guess is that between $40 and $50 billion would be saved in social welfare payments.
Unz argues that very low wages benefit fast-food consumers and employers at the expense of taxpayers. Taxpayers subsidize their cheap hamburgers with their own payroll deductions, hiding from the truth that they are paying for it anyway.
And by allowing government to take the credit for subsidizing low wages, conservatives play into Democrats' hands, Unz argues. Make businesses carry the true cost of their own operations, and you will weaken the link between social welfare and the ballot box, he says.
Unz admits some jobs will be lost by higher wages. But the only real low-wage jobs at risk, he says, are the types we’ve already lost — “domestic sweat shops” that make clothing and other goods that move in international commerce. Most low-wage jobs today that remain, including service industries and agriculture, will not be widely affected, Unz argues.
If Unz is right, the price increases needed to support such a wage hike would be minor. Walmart would only need to raise prices by 1.1 percent to cover the cost of higher wages. The agricultural sector would have to increase prices paid by consumers by 2 percent, and fast food would go up 7-8 percent.
But if fast food is forced to raise prices to accommodate higher wages, some argue the robot will outbid the hamburger flipper. One company actually has one ready to go. Called Momentum, the machine can make 360 gourmet hamburgers an hour without a human hand touching it. It slices the onions and tomatoes, grinds the meat, grills the burger and toasts the bun.
And the company is not shy about what it means for cheap labor. Its website brags about how it eliminates kitchen help from the hamburger business, and the company openly offers to help retrain workers.
“An average quick service restaurant spends $135K every year in labor for the production of hamburgers. Not only does our machine eliminate nearly all that cost, it also obviates the associated management headaches,” Momentum’s online brochure reads.
In fact, the company’s sales pitch is that rather than raising prices to pay higher wages for low quality food, its machine lets its owners profitably sell gourmet hamburgers at fast-food prices.
Ron Unz is unfazed by the fancy hamburgers. “I think only a very small fraction of the McDonald's workers do that particular job,” he said. But if the makers of Momentum are right, that fraction might average $135K in wages a year.
More to the point, as an advocate of technology and free markets, Unz accepts that if — and that’s a big if, in his mind — machines can outperform people who are paid “unsubsidized wages,” then so be it.
But Unz expects any employment effect to be minimal. He points to the last time California hiked its minimum wage, by 35 percent in 1996. That move was followed by four years of surging economy in California. This was part of a national rising tide, he concedes, but there is no evidence that the wage hike did anything to restrain that growth. More recently the city of San Jose raised its own minimum wage, and critics feared it would result in massive employment declines there. That also did not happen.
Unz may be handing conservatives a lifeline by reframing the issue to allow them to support higher minimum wages, notes Brookings Institution scholar Bill Galston, who echoes Unz’s claim that higher wages could result in significant savings in social welfare spending.
Galston points to a recent Quinnipiac poll that showed a vast majority of voters support a significant hike in the minimum wage, with a consensus settling roughly around the $10.10 suggested by President Obama, up from $7.25 an hour today. A whopping 71 percent favors increasing the minimum wage, including 52 percent of Republicans and 69 percent of the all-important independents.
Galston thinks the magic number is very close to the $10.10 proposed by Obama, based on the poll: 47 percent supported that number, and the remainder were evenly divided between something lower.
“Politicians have intuition about what the traffic will bear,” Galston said, noting that 49 percent of Republicans surveyed favored $10.10, with some favoring higher. “From a rank and file standpoint, this is not such a wedge issue,” Galston said. “Even the Republicans' own base embraces higher wages."
Against the tide
Mike Saltsman, research director for the Employment Policy Institute, is fighting against a heavy tide. A nonprofit think tank with ties to the restaurant and hospitality industries, EPI has been leading the fight against a higher minimum wage, which Saltsman says would “decimate the entry-level job market.”
Last week, EPI ran an ad in the New York Times with an image of a destitute woman in a hoodie holding a cardboard sign that said, “I don’t need a raise, I need a job.” The headline said, “The Best Weapon in the War on Poverty is a Job,” and the subtext added that “President Obama and Senate Democrats want to raise the minimum wage to $10.10 to help the poor. But nearly 60 percent of the working-age poor don’t have a job and wouldn’t be affected. Of those who would receive a raise, just 13 percent live in poor families. That’s why most studies show a wage hike doesn’t reduce poverty.”
Saltsman’s main argument is that minimum wage is an ineffective way to target the poor. Not everyone with low wages is poor, he says. Many are teenagers, and those who need access to entry-level jobs would threatened by hamburger machines.
Saltsman's preferred approach to poverty is to let the market decide how much the job is worth and use targeted government programs, like food stamps and the earned income tax credit, to make up the difference. This, he argues, would focus resources on those who need them most and not disperse them amongst middle class teenagers, for example.
“We do it through the tax code so we can accomplish it without the unintended consequences that comes with higher minimum wage," Saltsman said. In short, he believes the tax code can more effectively channel assistance to the poor without oversubsidizing middle class teenagers or robbing entry-level workers of opportunities.
Unz responds that the same logic could be turned on its head: the tax code could be tweaked to give employers tax deductions for hiring entry-level workers, essentially offsetting the higher wages with tax deductions. This would allow the government to give a boost to entry-level workers while requiring companies to pay a living wage to the rest.
Unz says that when he started his campaign for higher wages, he got stunned looks from many of his GOP allies, and three of the largest conservative talk radio voices on the West Coast invited him onto their shows to hash it out.
“I’ve had more success on the right than you might expect,” Unz said. Many conservatives think of wage hikes mainly as a threat to employment that will lead to more government handouts, he said, but when they do the math and realize that the reverse may be true, they open up.
Unz is finding support on the right. In December, Fox News commentator Charles Krauthammer called for a two-tier minimum wage hike, decrying the fact that many heads of household cannot support families. “If somebody is the only wage earner in the family,” Krauthammer said, “I think it would be humane to raise it to a level where they can cover their expenses.”
And last week, Krauthammer’s outspoken colleague at FOX News, Bill O’Reilly, came out in favor of higher minimums.
Last week, the libertarian-leaning magazine Forbes ran a commentary by U.K. economist Frances Copolla, who argued, “If a firm can’t pay its workers enough to live on, then it isn’t a viable business, because it is dependent on wage subsidies. The minimum wage is necessary to protect taxpayers from the rational desire of firms to get something for nothing.”
“Wage subsidies drive down wages,” Copolla wrote, arguing that the state must set a floor or it will find itself endlessly subsidizing the failure of businesses to cover their real costs.