Wage hikes on autopilot

It's always tempting to report that minimum-wage hikes, such as that scheduled to take effect in Nevada July 1, will "give the state's lowest-paid workers a 12 percent" (or whatever) "raise."

Unfortunately, that's not the whole story.

"July 1 will bring a jump in Nevada's mandated base pay," Jennifer Robinson reported in the April 8 Review-Journal. "The lowest hourly salary Nevada law allows will jump 12 percent on July 1, from $5.85 to $6.55 for workers with company-sponsored health benefits. For employees without on-the-job health insurance, the pay floor will rise 10.2 percent, from $6.85 to $7.55 an hour."

An "automatic raise" for all?

No government -- well, none yet installed on these shores -- can require an employer to give any employee a raise. What government tends to do is to outlaw employment at wages below a certain floor. Employers can generally be expected to respond by giving the "required" raise to certain employees ... while regretfully telling others not to let the door hit their backsides as they leave.

That's why young men no longer run out to your car when you pull into a gas station, asking "Fill 'er up?" Robot pumps are cheaper than attendants making today's minimum wage.

For instance, at Kanani Foods, a Las Vegas wholesaler of sushi, salads, and sandwiches, the pay raise could push up the company's monthly $35,000 payroll as much as 8 percent, says Matthew Terlep, owner and general manager.

Kanani cannot afford health coverage for its 18 full-timers, so it will face the $7.55 rate. Entry-level pay for probationary workers at Kanani starts at $7.50, not a big difference. But the hourly pay increase affects people who make more. Workers earning $9 and $10 an hour see lower earners reap a pay bump and they expect one, too, Mr. Terlep said -- precisely what those who dreamed up "minimum wages" intended.

Employers therefore face a tough, government-mandated choice: Cough up bigger paychecks or lose good people.

"My challenge today is just to stay in business," says Mr. Terlep, who has not drawn a paycheck himself in nearly three months. "The heyday of two or three years ago, those days are gone. ... I have to figure out a way to stay competitive and bring in good people and have them feel like they're getting good pay for a good day's work. I wish I could pay everyone $20 an hour, but it's not possible."

Nevada's minimum wage matched the federal rate until 2006, when Silver State voters fell for another feel-good interventionist scheme, approving a constitutional amendment that established a new base rate that will rise every July 1 depending on either inflation or any federal minimum wage hike, whichever is higher.

The amendment sets different minimums based on whether companies pay for health benefits, in an attempt to squeeze employers into paying for health insurance.

The nation's minimum rose 70 cents on July 23, to $6.55 an hour, and that's the increase that will push up Nevada's minimum wage this coming July 1.

The state minimum for workers with health insurance is $5.85 an hour, but because federal rates supersede state wage laws, companies that cover insurance benefits should be paying $6.55 already, says Nevada Labor Commissioner Michael Tanchek.

More increases are on tap: The federal minimum will jump once more in late July, to $7.25, which means a 2010 increase to $8.25 an hour for Nevada businesses that do not pay insurance. Companies that do cover health benefits will have to pay $7.25 an hour.

A "raise" for low-wage Nevada workers? Only those who aren't laid off so their employers can still make ends meet.

As Tim Miller of Washington's Employment Policies Institute notes, "State legislators and the public should beware that putting minimum wage increases on autopilot -- without any mechanism for stopping the increases during a recession -- is an extremely misguided policy that will yielding disastrous results for vulnerable employees in the state. In Nevada, employers -- who are seeing demand for their products and services dropping dramatically -- will have to stomach yet another wage increase in July and will be forced to cut employees' hours and eliminate some jobs entirely.

"Decades of economic research predicted that there would be an increase in job losses following minimum wage hikes, particularly among vulnerable groups like minority teens and adults without a high school diploma. This job loss is only exacerbated in a weak economy.

"The unintended consequence of reckless, autopilot minimum wage hikes is job loss for the least skilled workers at a time when they need help the most," Mr. Miller points out. "A job at the previous minimum wage is much better than none at a higher rate."