Rising Corporate Minimum Wages Are Not a Liberal Victory

Rising Corporate Minimum Wages Are Not a Liberal Victory

April 6, 2015

By: Patrick Hedger, Policy Director-American Encore

A recent Politico article leads with the line, “Progressives have a new rhetorical ally: corporate America.” The article then goes on to discuss the various major corporations that have decided to raise the base hourly compensation rate for their lowest paid employees. Liberals/progressives want people to see this as a vindication of their agenda. They feel that the efficacy of minimum wage policies can no longer be denied if major corporations are on board and begin raising their own wage rates. They feel this way because corporate America is perceived by the layperson as being a traditionally right-wing institution. Unfortunately for the progressives, none of the above is based in reality and pushing minimum wage policies remains an effective way to identify people as economic illiterates.

First of all, major corporations have been notorious for pushing bad economic policy for decades. Through lobbyists and campaign donations, some large corporations purchase political favors in Washington which result in favorable tax treatment and regulations for their particular businesses. This is known as rent seeking or crony capitalism and it is an all too common issue. Crony capitalism has contributed to the massive growth in the number of federal rules and regulations as well as inherent unfairness in the tax code. The corporate America-right wing association made in popular culture and leftist journalism stems from an overly simplistic understanding of the economy where the pro-economic growth rhetoric and policies of the right are mistaken for the corporate welfare culture that has been created by entrenched political interests in Washington. Letting one specific company, industry, or industry-subset keep more of their money through targeted tax breaks isn’t “right wing” unless all businesses in the economy enjoy the same privilege. Therefore, even if some CEOs are out there openly calling for a higher statutory minimum wage, rising corporate base wages is not some sort of coup de grâce for the economic case against minimum wage policies.

Minimum wage policies can be viewed as a form of crony capitalism, creating an uneven playing field for large corporations against their smaller competitors, though the recent wage increases executed by Walmart, McDonald's, and others are largely unrelated to the rent-seeking phenomenon. There is a key difference between what these companies have done and what progressives are pushing for in policy terms. These companies are voluntarily raising the wages they pay out. Progressives, on the other hand, want to force all companies to pay a certain minimum wage rate set by Washington. There is very little agreement here, even in rhetoric, beyond saying that people making more money is a good thing. No one disagrees with that, but to say that elective wage increases somehow allies big business with minimum wage advocates is an enormous stretch. Should people make more money? Sure, sounds great, but we do have a right, if not an obligation, to question how and why such is occurring. After all, the fact that we agree that it is a good thing that people should make more money does not justify bank robbery. 

The big companies voluntarily increasing base wage rates are responding to market mechanisms, not government force. Other corporations have innovated and increased their efficiency allowing them to lower costs and free up revenue. They can use these liberated resources to offer the most competitive wages in their given industries. This attracts the best talent. When companies like Walmart and McDonald’s raise their wages in response, it is clear they are trying to attract and retain talent as well. In the end, because the decision is voluntarily made to increase wage rates, all parties benefit. The worker takes home higher wages and the company keeps its best employees. Even if the government ordered a minimum wage increase to the exact same rate as what Walmart or McDonald’s voluntarily offers, the situation becomes vastly different and extremely damaging.

When a single company decides to voluntarily increase its base wage rate, that decision will be beneficial to the company. It must be, or they otherwise wouldn’t agree to do it. The decision also only applies to that particular company. Yet when the government imposes a universal minimum wage, the increase becomes involuntary, which means it is something that some businesses are not prepared for and thus something that could damage those particular businesses’ viability. Some companies will not be able to afford the new base wage rates. Even when another company voluntarily raises pay and creates pressure on other companies to increase theirs’ as well, such pressure does not carry the force of law. Instead of companies adjusting to increased competition for labor in the market on their time with wage structures with which they are comfortable, business owners subject to statutory minimum wage increases are faced with arbitrary government deadlines and wage rates that may not be tenable. The result is that businesses must layoff workers it can no longer afford, raise the prices for its goods or services, or simply close up shop.

In short, equating voluntary decisions by major corporations to good national policy is perilous. Just because Walmart and McDonald’s can quickly afford to respond to the pressure exerted by their other Fortune 500 competitors in the labor market doesn’t mean small businesses can as well. Assuming they can by increasing the statutory minimum wage will destroy economic opportunity for small business employers and employees alike. It is certainly a good thing that these major companies are raising employee pay, but we must take careful notice of how and why they are doing so. Higher wages across the economy are spurred on by innovation. Companies that can increase efficiency and lower costs can compete for more talented labor with higher wages. Trying to artificially impose the byproduct of entrepreneurial ingenuity with broad government mandates will be counterproductive to the goal of rising incomes as these policies destroy the cradle of innovation that is small business.


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