U.S. lawmakers' misguided minimum-wage policies actually hurt low-income families

Nation's Restaurant News,  Sept 24, 2007  by Richard Berman

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That the start of the school year comes so close to Labor Day should be an annual reminder of the link between education and wages. For the restaurant industry in particular, there is a set of basic skills that employees have got to have if they want to get ahead.

Unfortunately, one prominent activist movement just doesn't get this. Members of the movement want the government to force employers to pay employees more money regardless of whether or not employees have the skills to justify a raise. In their push to "help" low-income families, they're squashing the entry-level jobs that have opened the door of opportunity for so many Americans.

The misguided policy in question--the one that never goes away--is the minimum wage. Its advocates suffer from a fundamental confusion about the causes and effects of low wages.

Employers hire people only so long as their wage cost is no greater than the value of their output. For some people this threshold comes at a low wage. The "causes" are low skills and low productivity. The "effect" is low income.

The most recent National Assessment of Adult Literacy, or NAAL, conducted by the Department of Education, helps to illustrate this basic point. NAAL tests adults on three types of literacy to measure ability in reading, form completion and quantitative skills. For each of these areas about 20 percent of American adults fall into the lowest range of "below basic."

To get an idea of what "below basic" means, here is one sample question from the survey: "Compare two prices by identifying the appropriate numbers and subtracting." Asking someone to "calculate the cost of a sandwich and salad using prices from a menu" is a question considered to be at a higher task level.

Adults in the lowest category comprise more than 50 percent of those in households with incomes of less than $15,000.

As miserable as functional illiteracy may be, a higher mandated wage just makes things worse. Somebody who can't make change or add up menu prices becomes a good candidate for a layoff when employers have to cut costs.

Plus, a higher mandated wage makes it all the more likely that the unemployed stay that way, locking them out of jobs that can help develop useful skills.

That's not to suggest that all minimum-wage workers struggle with reading and math. But skilled workers are not likely to remain minimum-wage workers for long regardless of the law. It's obvious that skills that are complemented with experience lead to increased productivity and higher income. According to research from economists at Miami University in Ohio and Florida State University, the rate of wage growth for high-school graduates is nearly 50 percent higher than for those who dropped out.

Of course, there's a limit to how much someone can increase his or her earnings in any one position. But the great thing about employment--in any job--is that the training and soft skills you receive in entry-level positions continues to be useful once you've moved up the pay scale.

What legislators should be doing is encouraging this natural process of pay growth and fostering learning opportunities for low-skilled workers. Simply forcing businesses to give employees raises does nothing to address the underlying problem of a skills deficit.

Tell employers how much more they must pay and you encourage them to upgrade their hiring. The average annual family income of a minimum-wage employee is nearly $47,000. Today's minimum-wage employee comes from a household that probably does not suffer from a skills deficit.

Sen. Ted Kennedy, D-Mass., has a longstanding slogan that "people who work hard and play by the rules should not have to live in poverty." True enough. But one of the "rules" of the workplace is that you have to have skills. It's the law--of economics.

This article does not necessarily reflect the opinions of the editors and management at Nation's Restaurant News.

Richard Berman is president of Berman & Co., a Washington, D.C.-based lobbying firm specializing in research, communications and advertising.

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