Minimum wage; investment in education; and good news in housing

By Marty Carpenter, ksl.com Contributor | Posted - Mar 6th, 2013 @ 10:17am



SALT LAKE CITY — If there is one problem with writing a monthly business column it is that there are often several topics you want to cover that come and go during those weeks in between publishing dates. So, today, I want to cover a few that didn't quite line-up just right on the editorial calendar.

Raising the minimum wage

During the State of the Union address last month, President Obama made his argument to raise the minimum wage from $7.25 per hour to $9.00 per hour. Just this morning there is news that a bill to raise the minimum wage to $10.10 per hour and tying the rate to inflation will be introduced in the House and the Senate.

Said the president in the State of the Union: "Tonight, let's declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead. For businesses across the country, it would mean customers with more money in their pockets."

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At first glance, he makes a compelling case.

That's why things are almost always worth a second glance.

The problem with this approach—a government mandate of revenue distribution within a private business—is that it doesn't increase revenue in any way.

Let's say you have a business with 10 employees making the minimum wage. Suddenly the government increases the minimum wage by $1.75 per hour. That means with the same amount of money coming into your business you now have to pay more in compensation. You either need to make cuts somewhere else so you can increase the amount you pay each of these workers, find a way to do more with the same amount of workers and increase the overall revenue, cut the amount of hours those employees work or eliminate some of the jobs.

By my count that means there is, at best, a 50-50 chance the workers actually get the raise.

Raising the minimum wage actually has the opposite effect than what the president is arguing. It will cost some of the most vulnerable workers hours they count on and it will cost some their jobs.

If you are a minimum wage employee, you might think it sounds pretty good that the leader of the free world would like to give you a raise. I can understand that. But if you are one of the ten minimum wage employees at your business, you better hope you are one of the best and you better be willing to do the work of the three that are about to be laid off—because that's the most likely next step.

No matter what your profession, consider what would happen if the government were to mandate you receive a salary increase of 24 percent. Do you think you would be more likely to show up at work the next day making more money… or looking for a new job?

This idea disproportionately hurts the low-wage workers it is trying to benefit and it makes it more difficult for businesses to hire young people making their first entrance into the workforce.

Of course, there's also that nagging little detail that raising the minimum wage to $9 per hour still isn't a great living. Full time work at the current minimum wage earns you just over $15,000 per year. At the rate the president is suggesting, it jumps to $18,720.

The way to make more money in a free enterprise system is to increase your value in the marketplace. You have to enhance your skills, increase you education or find some way to be of greater value to your employer.

Re-slicing the pie doesn't make any more pie.

Funding education

Speaking of enhancing skills, education continues to be the big issue on Capitol Hill as we head into crunch time in the appropriations process. For those who don't speak the language of the Legislature, appropriations is the process by which the House and Senate decide who gets the money and just how much.

Last Sunday, Utah's business community ran a full-page ad in both major daily newspapers thanking the members of the Legislature for their service and calling for three unifying elements of a bold, multi-year agenda:

  1. Pass a joint resolution adopting the twin goals of 90 percent reading and math proficiency in elementary schools and 66 percent of adults with a postsecondary degree or certificate by 2020.

  2. Make strategic investments toward these measurable goals. As a starting point, and with appreciation for the budget challenges Utah faces, we recommend the following new investments in education: $20 million for higher education's 66 percent plan, $15 million for a STEM action center, $9 million for additional postsecondary certificates, $20 million for early intervention and children at risk, $1 million for ACT exams for every high school student and full commitment to fund computer-adaptive testing in Utah schools.

  3. Commit to the development of a collaborative, 10-year unified education plan that can be adopted by the end of 2014.

Rarely is the decision to invest found on the path of least resistance. It is a difficult, yet time-tested principle that dedicating money you have today to grow opportunity and return on investment in the future is the right way to go.

The Legislature and the governor have a track record of making solid investments for our state—even in difficult economic circumstances. Utah's economy is growing and we have some ability to invest. Providing the money for education will pay off.

Housing market heats up

Finally, a quick word about the housing market. My friend, Rob Brough, wrote earlier this week that the Utah housing market is ready to heat up. Housing experts across the state agree with him.

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When the economy turned sour in 2008, the generally accepted refrain was that housing got us into the mess and housing would have to help get us out. One of the biggest problems we faced when the housing bubble burst was excess inventory. It takes time to restore balance in the market. Today, the number of existing homes available has dropped by 33 percent in the past 12 months. Since April 2012, home prices in the Salt Lake area have risen every month from the same month the year prior.

The analysis: housing—always a cyclical business—is primed for an up-cycle.

That's good news for those looking to sell in the next 12-18 months in particular, and it's good news for the rest of us, too.

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Marty Carpenter

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