Sucking Sound; Ohio Down the Drain

It appears the voters have once again demonstrated their ignorance of economics. Issue 2 passed -- the Minimum Wage Amendment to the Ohio Constitution. It ties the minimum wage to the Consumer Price Index's annual September rate of increase for "all urban wage earners (New York and Los Angeles included) and clerical workers for all items". It does not address negative rates of increase, such as occurred August-September 2006, but that will probably be a matter for the courts to decide ("What do you mean, you are increasing the minimum wage negatively?").

Ross Perot might want to run for president again.

I decided to do a few calculations on the cost of labor in Ohio. The minimum will go from $5.15 to $6.85 per hour seven weeks from now (1-1-2007). Let's see what that will cost an employer. First, there is the wage itself. Then we have to consider the cost of Social Security and Medicare premiums (currently totaling 7.65% each for employer and employee). We will add State Unemployment Tax and Workers' Comp Tax. For all categories, except construction, the cost of employing someone will increase from $5.68 to $7.56; for construction, the minimum wage cost will go from $5.78 to $7.72 (because of a difference in Unemployment Tax). From there we have some fun with Workers' Comp.

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Sample Work	2006 Cost	2007 Cost
Fast Food Worker	$5.86	$7.80
Gas Station Clerk	$5.94	$7.91
Apple Picker	$7.53	$10.02
Berry Picker	$6.11	$8.13
Carpenter Labor	$6.31	$8.42
Carpenter (1-2 unit)	$6.73	$8.99

Now while the carpenter will probably not be affected (and this would not affect Amish carpenters, since they don't pay the SS and Medicare taxes), the cost of employing a hamburger flipper will go up by almost $2/hour, and the cost of a migrant worker to pick apples will increase by about $2.24/hour (picking apples is a VERY dangerous job!). The kid looking for a job at the gas station or grocery store will cost his boss an additional $1.97/hour. One of two things will happen : either the cost to consumer will rise (which will increase the CPI and drive up the wage the next year), or the job will go away.

Of course, there were some other things in the fine print that voters might not have considered, such as employment records being made available to anyone who can show they have an interest in the worker's welfare, and the time requirement for an employer to keep those records. Ohio employers now have an additional recordkeeping and potential legal liability that will affect their bottom line.

We are in a globally competitive economy. The wages in Bangladesh may not seem to have anything to do with the cost of a Mickey D hamburger, but they are intertwined through networks of costs and prices. I will predict this : those who are lucky enough to get starter jobs will find their increased pay will buy them less than it does now, and for many on the bottom of the economic rung, the prospects will become more dismal. For the employers and consumers, rough water is ahead. The costs of employing a worker will increase geometrically, since Unemployment Tax is tied to the number of people making claims, and the CPI will be fueled by the wage/price spiral.

Economic theory states that scarcity makes desirable things more valuable. Jobs are about to become far more valuable in Ohio than they ever were before.