After reading the Herald-Leader's Aug. 16 editorial and special report, it might sound like a no-brainer to support a proposal before the Urban County Government to increase the minimum wage.
Unfortunately, this report gives false hope to city leaders and low-wage workers, ignores the unintended consequences of an increase and, most importantly, ignores the fact that Kentucky cities and counties don't yet have the legal authority to increase the minimum wage.
Proponents say a minimum-wage increase would reduce poverty rates and lower taxpayer-subsidized benefits without having a single negative impact on local businesses. Anyone with a basic understanding of economics knows this sounds too good to be true.
First, the editorial argues that, by increasing the minimum wage, Lexington will see fewer citizens living in poverty. According to the Kentucky Annual Economic Report 2007, by University of Kentucky economics professors Kenneth R. Troske and Aaron Yelowitz, increasing the minimum wage has a nominal impact on reducing poverty rates.
Actually, according to that report, low-wage workers are facing poverty not because of the wages they are paid, but because, on average, they spend about four months of the year out of work. In fact, an increased minimum wage will likely force employers to cut jobs and hours of low-wage workers.
According to the editorial, taxpayers are subsidizing low wages, since many of these workers take advantage of government programs such as Medicaid, food assistance programs and welfare benefits. But it fails to mention that even if workers move to $10.10 per hour they would likely still be eligible for these benefits.
Kentucky recently expanded its Medicaid population to include those making 138 percent of the federal poverty level. This means that a minimum-wage worker in a family of four will still be Medicaid-eligible if they make the new minimum wage of $18,382 annually, assuming they work 40 hours per week. Also, if employees currently on Medicaid come off, they will likely be eligible for taxpayer-funded subsidies to buy health insurance on the private market.
Unquestionably, businesses — including retailers and restaurants — are telling elected officials, their customers and employees that they will be forced to increase prices if the city enacts a minimum-wage increase. But the Herald-Leader thinks this is just whining, stating, "But we taxpayers are compelled to subsidize today's prices, whether we take advantage of them or not. If wages rise and prices with them, we can choose whether to eat out and what to order."
Clearly this statement misses the point: If people choose not to eat at their favorite restaurant, the restaurant will have to close. Closing means that the city loses the taxpaying business and the employees lose jobs and likely they will need more benefits.
This issue is exacerbated by the fact that the minimum-wage increase being discussed is a local increase. This means taxpayers wanting to enjoy a meal or buy clothes would visit surrounding cities in order to be able to afford these things. This will likely hurt Lexington's homegrown businesses the most.
Even the Herald-Leader's own worker interviews prove that a government-mandated wage increase is not necessary and that employers are willing to pay to keep good employees. According to the interview with the reformed convicted bank robber, after four months of working on his job, he received a raise and was making over $10 per hour.
The trend of cities increasing the minimum wage started in Seattle, with an increase to $15 per hour over a three-year period. Starting April 1 of this year, employees there had to be paid a minimum of $10.50 per hour. Soon after the unintended consequences came to light. According to a Fox News report, employers started telling stories about employees requesting to have their hours cut because they were making too much money and lost eligibility for programs such as Medicaid and food assistance.
Some large corporations that voluntarily decided to increase the minimum wage immediately heard complaints from tenured employees upset that employees with less time on the job were getting pay increases.
If the minimum-wage increase is adopted in Lexington, employers will have to find ways to adapt and it is likely they will choose technology — replacing workers with machines to make labor budgets. For example, The Wall Street Journal recently discussed Wendy's announcement on its second-quarter earnings call that minimum-wage increases will lead to fewer jobs and a transition to self-order kiosks.
But by far the most egregious area the editorial failed to discuss is one simple fact: Cities in Kentucky don't have the legal authority to increase the minimum wage.
While one could argue that two courts have upheld Louisville's authority to increase the minimum wage, the issue is far from over. The Kentucky Supreme Court will have the final say on this issue and it's reckless for Lexington to act before the issue is settled.
If Lexington decides to increase the minimum wage, not only is it violating the law, it is likely to hurt those it is trying to help. Businesses will cut employee work hours, use technology to reduce labor costs or go out of business altogether. The only winners will be its surrounding cities who will certainly take advantage of their ability to run their businesses more competitively.