As I was cutting my lawn several Saturdays ago, I observed a team of red-shirted individuals going from door to door and obtaining signatures on a petition. One of these individuals approached my property, spouted off a memorized blurb on his frustration with the current minimum wage, and requested my signature on a document to be forwarded to Pennsylvania legislators in the hope of pressuring them into raising the minimum wage in Pennsylvania.

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I declined.

I didn’t decline because I don’t want to see the less fortunate better cope with the cost of living. I would love to see my fellow Pennsylvanians rise towards prosperity. Rather, I declined because I was appalled at the ease with which my neighbors would grant their support without hearing about or considering the consequences of a higher minimum wage in Pennsylvania.

What? There is a downside to a higher minimum wage?

You bet there is. And failing to weigh all of the benefits and consequences of a higher minimum wage may result in an economy in which more and more Pennsylvanians experience hardship.

And today, it seems, that a huge jump in Pennsylvania’s minimum wage is inevitable, awaiting only some formalities of being signed into law.

There are six consequences of a higher minimum wage that must be considered:

A Further Deterioration of Global Competitiveness. It’s no secret: America has been losing jobs to low cost countries like China and India. Instead of paying American workers minimum wage, American companies are outsourcing work to companies in low-cost countries, where workers are paid as little as 10% of what American workers make for the same job. If American wages increase, that will only make outsourcing to low-cost countries more attractive and result in more American job loss. I would rather see Pennsylvanians make minimum wage than see them unemployed.

A Deterioration of National Competitiveness. When companies seek to open a new factory, call center, or other type of operation, one of the main considerations is cost of the workforce. These companies clearly have a choice when it comes to which state to choose for their expansion. If Pennsylvania raises its minimum wage to $7.15 and West Virginia maintains its minimum wage at $5.15, which state would get stronger consideration for a company’s new jobs? A higher minimum wage would result in fewer and fewer new jobs coming to Pennsylvania.

The Attractiveness of Automation. Have you noticed the proliferation of self-checkout registers at grocery stores? Grocers compare the cost of automation versus the cost of having work performed by humans. And they select the lower cost option. If minimum wage increases, automation will be even less expensive from a relative standpoint and will replace a higher number of jobs, faster.

Interference With Federal Monetary Policy. The nation’s economy has been relatively healthy for quite some time. Even the recession that ensued around the time of 9/11 – arguably the most devastating event in American history – was short and less than totally devastating. The reason behind this stability is the excellent performance of the Federal Reserve Bank in leading the nation’s monetary policy. The Fed’s expert decisions have, among other things, kept inflation in check, fostered economic growth, and resulted in mortgage interest rates so low as to make home ownership more affordable for all classes of Americans. A higher minimum wage will bring on inflationary pressures that will force the Fed into adopting a strategy that deviates from what has been so successful for so long. High inflation, a slowdown in business growth, and less affordable housing are just a few of the consequences that could arise from a forced shift in the Fed’s approach.

Inflation. With grocery stores, retailers, and other companies who employ minimum wage workers being hit with an instant cost increase, what do you think they will do: allow their profits to be eradicated because their labor costs went up? No. They will pass their costs on to the consumer. If minimum wage rises, it is likely that the cost of everything from food to appliances to plumbing services will rise proportionately. So if a minimum wage worker sees his earnings rise to $900 from $800, but also sees his expenses rise to $900 from $800, is there any gain for the minimum wage worker? No. And there is actually a loss of spending power among those who earn more than minimum wage. No individual wins!

Wage Determination. It is not the government that ultimately determines a worker’s wage – it is that worker’s employer. No employer has to pay someone $5.15 an hour. It is within their full authority to pay $6.00 an hour, $7.00 an hour, or whatever they choose based on the value of the work being performed. So, if there is a complaint with pay levels, it should be addressed with the employer, not the government. The nation’s unemployment rate is at its lowest point in five years. There is a high demand for good workers. If one isn’t happy with his wages, there are other jobs available to him. And if a worker is not ambitious enough to pursue better opportunities for himself, I am not sure that he deserves a mandated increase in pay.

The bottom line is that there are many consequences to increasing the minimum wage.

Am I urging Pennsylvanians to take to the streets to protest the minimum wage increase?

No.

But I am urging Pennsylvanians to consider the broader consequences of any legislation before signing any petition. If you understand the consequences and are willing to risk being affected by them, sign away. But don’t support movements without an awareness of how you, Pennsylvania, and America could be negatively impacted by legislation.

So what does this have to do with purchasing, especially if you’re in a state other than Pennsylvania?

Well, it is inevitable that residents of other states will cry to their legislators: “Look what Pennsylvania has done! We need a higher minimum wage, too!” So, organizations in every state will be affected eventually.

That means that purchasers in the USA will be outsourcing more and more to low-cost countries. If there was any thought of that trend slowing down, dramatic increases in the minimum wage will only speed up the rate of offshoring. And purchasers can also expect to buy more equipment as employers look for new ways to automate work performed by humans.

Be ready.

Respectfully,
Charles Dominick, SPSM
President
Next Level Purchasing, Inc.
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Charles Dominick, SPSM, SPSM2, SPSM3

Charles Dominick, SPSM, SPSM2, SPSM3 is an internationally-recognized business expert, legendary procurement thought leader, award-winning entrepreneur, and provocative blogger. Charles founded the Next Level Purchasing Association in 2000, oversaw its incredible growth, and successfully led the organization to its acquisition by the Certitrek Group in 2016. He continues to blog and provide advisory services for the NLPA on a part-time basis as he incubates his upcoming business innovations. Charles is also the co-author of the wildly popular, groundbreaking book, "The Procurement Game Plan: Winning Strategies & Techniques For Supply Management Professionals."

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