George Gibbs Center for Economic Prosperity

Two Pa⁠t⁠hs ⁠t⁠o Wage Grow⁠t⁠h

By: Dr. J. Robert McClure / 2018

By Robert McClure

A dinner theater in Fort Myers, Florida, recently gave its employees raises ranging from 5 percent to 10 percent. Big deal? The Wall Street Journal thought so. In early January, a time when the newspaper typically looks at the economic prospects for the year ahead, it published a story about this and similar actions in other cities experiencing low unemployment.

The pay hikes were portrayed as quite possibly a long-awaited turning point. The Journal noted that wage growth had been “stuck in neutral for the past two years, even as the unemployment rate has declined to the lowest level in 17 years.” Could this be a sign of a new era?

The owner of the Fort Myers dinner theater, William Prather, explained that labor already was in short supply. Florida’s economy is flourishing thanks at least in part to migration from states where high taxes and intrusive regulations are stifling economic growth.

Moreover, in Fort Myers and several other Florida cities, the shortage of skilled labor worsened after Hurricane Irma caused an immediate need for more construction workers. As workers gravitated toward construction jobs, it created shortages in other fields. Consequently, Prather told the Journal, “If you’re a dishwasher with a pulse, we’d probably hire you.”

All of this is a stark reminder that wages are not immune to the laws of supply and demand. The best way to get wage hikes that are real — in excess of inflation — and sustainable is to adopt policies that foster a good economic climate in the private sector.

Such a climate is one in which the free market can operate unimpeded by costly mandates imposed by politicians and bureaucrats — especially those whose record on fiscal issues ought to disqualify them from interfering in business matters except when necessary to protect public health and safety.

It’s also a reminder of something that this Wall Street Journal story didn’t delve into: For employers, “wages” and “labor costs” are not the same thing. As any entrepreneur who has ever met a payroll can attest, labor costs may rise even as wages — one component of labor costs — remain “stuck in neutral.”

Unfortunately, this seems to be a lesson that is lost on our friends who identify themselves as “progressives.” In cities and states where they’re in control, they have repeatedly enacted measures that burden employers with a variety of labor costs.

A living wage? A minimum wage unrelated to productivity? Free health insurance? Robust retirement plans? Workers’ comp? Paid family leave? Paid maternity leave? Paid sick leave? Additional paid holidays? The drumbeat of pay, pay, pay goes on.

At first glance, each of these benefits sounds like a good and humane idea. The have certainly had appeal when labor unions and their progressive allies have been able to put them before voters.

However, they often lead to unintended consequences, backfiring and hurting those the mandates were supposedly intended to help. After all, when labor costs soar, conscientious employers are bound to seek ways to control those costs by hiring fewer workers. Then, with fewer jobs available, the pressure to raise wages abates.

This scenario is playing out at the nation’s largest private employer, Walmart. The retail giant recently announced that it is boosting its minimum pay to $11 an hour and more of its employees will now qualify for subsidized health insurance.

Visit almost any big box store nowadays, however, and you’ll see that one way to pay each employee more is to hire fewer of them. In the case of Walmart and other large retailers, ranging from Home Depot and Lowe’s to Sam’s Club, the most visible evidence of that trend is in the checkout area.

Self-checkout lanes are increasingly replacing cashiers. While roughly half the checkout lanes at a typical Walmart store once were staffed by cashiers during busy times, now it’s not uncommon for only one or two cashiers to be on duty.

As one frustrated customer who dislikes the self-checkout experience complained, “It’s like the Hotel California in reverse: You can leave anytime you like, but you can’t check out.”

Meanwhile, from stockrooms and warehouses to loading docks and other areas less visible to customers, machines are reducing the number of humans required to get the job done. Indeed, automation now offers cost-effective alternatives to humans in many fields. Sure, robots require maintenance, but they don’t need health insurance, family leave, or any of the other perks that progressives are piling on employers.

So, basically, there are two paths to wage growth. The better path leads to wage growth that is real and sustainable by allowing the law of supply and demand to operate in a free market, untrammeled by excessive governmental intervention.

The other path — featuring wage hikes unrelated to gains in productivity and imposed via government edicts kowtowing to the grandstanding of political progressives — destroys jobs in the long run, thus harming those very workers it was intended to help. Which path will America choose?

Dr. Robert McClure provides expert perspective on current issues facing our nation and his home state of Florida, the third-largest state in the nation and a policy bellwether for the country. Recently named one of the Most Influential People in Florida Politics, Dr. McClure serves as the President and CEO of The James Madison Institute, Florida’s premier free-market think tank. He is a frequent commentator on television and talk radio programs and has lectured nationally on diverse policy issues. Dr. McClure has been published numerous times at both the state and national level on topics including property rights, tax policy, health care, and education reform. To read more of his reports — Click Here Now.