Editorial: Wage compression

Dan Price, owner of Seattle-based Gravity Payments, made a splash last year when he announced he was phasing in a minimum annual salary of $70,000 for the 120 workers at his credit-card processing company.

That sounded great, of course, if you were one of his employees making $35,000 a year. But it wasn’t so great for long-time staffers who already made the new minimum or more. Mr. Price lost two of his top employees over the move, the New York Times reported.

A similar phenomenon is now in play as progressives agitate for an increase in the minimum wage to $15.

“So-called wage compression poses a financial and management challenge for employers,” a Wall Street Journal story noted Friday. The higher pay floor has “rankled some staff unhappy that less experienced co-workers now earn the same wages they spent months or years striving to achieve.”

At least Mr. Price acted voluntarily and will live with the consequences of his own decision. Unfortunately, the politicians, activists and union bosses intent on forcing higher payroll costs on small-business owners face no similar reckoning in their quest to outlaw more jobs.

Instead, employers face a dilemma beyond simply coping with higher payrolls: If you give unskilled workers at the bottom of the rung a large pay boost, what do you do to quell resentment among those in the middle levels?

At a pet-food supply chain in Seattle, some workers who had spent months on the job before reaching $12 an hour were unhappy that, thanks to the city’s new minimum wage law, newcomers would jump right in at that level. “They felt that they weren’t able to get compensated for what they had learned,” a company manager told the Journal.

Nor is it simply a matter of bumping up wage scales across the board, something beyond the means of many small companies. The owner of three clothing resale stores in Virginia told the paper that a proposed 38 percent hike in the state’s minimum wage would “have eaten up a fifth of her 10 percent profit margin,” while adjusting her wage scale to ensure long-time workers still made more than new hires would “have consumed more than half the profits.”

Instead, many business owners respond by eliminating positions or scaling back on expansion plans.

None of this matters, of course, to those pushing a higher minimum wage. As California Gov. Jerry Brown admitted last month in a fit of accidental candor, “Economically, minimum wages may not make sense” but “morally, socially and politically they make every sense … .”

Because in today’s progressive political climate, good intentions and favorable optics far outweigh actual results.

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