Some Businesspeople Think A Higher Minimum Wage Is A Good Idea

The minimum wage went up from $5.15 an hour to $5.85 on July 24, and of course in the months leading up to this we heard the usual "free market" mantras: It's inflationary, it will kill jobs, it will mainly hurt teenagers, it's "artificial," and so on.

It hasn't escaped some of us that these dire forecasts have been wrong, many times, since the wage floor was established in 1938. But it's also refreshing to find that not all businesspeople buy into this economic nonhistory. On July 19, The Newswire of Corporate Social Responsibility posted a news release from Business for Shared Prosperity, "Business Leaders Cheer Raise in Minimum Wage."

The lead says, "Contrary to conventional wisdom, many American businesses are cheering the raise. The chief executives of Costco, ABC Home, Addus HealthCare, Eileen Fisher, the US Women's Chamber of Commerce, and small business owners in every state are among those saying a raise for those at the bottom won't hurt the bottom line. As Costco's CEO Jim Sinegal, has put it: 'Raising the minimum wage is good for business.' "

The release went on: "In a statement with nearly 800 signers and climbing, business leaders from all around the country assert:

'Higher wages benefit business by increasing consumer purchasing power, reducing costly employee turnover, raising productivity, and improving product quality, customer satisfaction and company reputation. We cannot build a strong 21st century economy when more and more hardworking Americans struggle to make ends meet. A fair minimum wage shows we value both work and responsible businesses. A fair minimum wage is a sound investment in the future of our communities and our nation.' "

For me, a big surprise was that, "Two out of three small business owners supported an increase in the minimum wage in a nationwide survey conducted by Small Business Majority in 2006." That finding belies the image of the cash-strapped entrepreneur who has to tearfully lay off a third of his or her workers upon having to pay them 70 cents more an hour.

The Economic Priesthood often falls back on what it calls Say's Law -- Jean-Baptiste Say's principle that, essentially, supply creates its own demand. In other words, recessions don't happen because of general supply gluts, or because people don't have money to buy goods. This isn't supposed to happen in a free market, because the mechanism is said to be self-correcting. You don't really need to worry about aggregate demand, it is argued.

In America in 1929, the economy seemed to be in an incredibly high gear. But if you looked closer, farming areas and small towns were relatively depressed. The distribution of wealth has rarely been more unequal in the country than it was that year. According to Say's principle, what happened in the U.S. from 1929-39 and spread through much of the world was theoretically impossible. Events seemed to indicate to some, including John Maynard Keynes, that a demotion of Say's Law was in order. But, it's still in the textbooks.

In practice, successful capitalists have often known that a work force with little discretionary income cannot afford many of the products it produces. Some seem to understand that there has to be healthy demand side for the equation to work well. Henry Ford, anti-Semitic kook though he was, started paying his assembly-line workers fairly well many years before they organized, because he understood the simple fact that reasonably paid workers could actually afford the payments on a Model T.

I'm not writing about ancient history here. But even among "free-market" economists, memories can be short. Among those actually running businesses, recall is sometimes better.

Link: The full article is at The Newswire of Corporate Social Responsibility. And there's plenty on Say's Law at Wikipedia.