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The Tentacle


October 16, 2017

The Montgomery County Misery Index

Jason Miller

Last week Montgomery County declared that it would not pay for a living wage study done by a private company it hired. The study was flawed. The study results may be flawed, but not as badly as the flaws of the living wage itself,

 

The reason that Montgomery County refused to pay, according to Patrick Lacefield, a spokesman for Montgomery County Executive Isiah Leggett, was that the county did not agree on how the study was conducted. County officials were right to reject the study, but not on the grounds of policy. The study and the policy are flawed.

 

The study in question declared that a $15 minimum wage in Montgomery County would cost 47,000 by 2022 if it were implemented with haste. The firm that conducted the study admitted to a computation error that inflated job loss. The study was truly flawed.

 

The results of a $15-an- hour minimum wage will be the same no matter where it is implemented. Montgomery and Prince George’s counties will find themselves in a world of hurt as the result from a self-inflicted wound.

 

Why?

 

Simple. The misery Index as described by economist Arthur Okun. The concept is created when unemployment data is added to the inflation rate. The notion states that a combination of rising inflation and more people out of work increases the chance of deteriorating economic effects.

 

What you get from a $15 minimum wage is artificial, self-imposed inflation. The business owner is forced to pay more for unskilled labor and thus passing this additional cost onto his customers. This can turn a vibrant business into a business that can barely get by.

 

The skilled labor force that once made $15 dollars an hour demands a raise. Why shouldn’t they be paid more than the unskilled labor? Professional wage increases cause products and services to become more expensive. The ripple effect in the local economy begins, all in the name of fairness

 

A $3 burger at the local Mom and Pop restaurant might suddenly become a $7 burger overnight. This change happens to cover the cost of paying the three main chefs, one assistant chef and the four cash register employees $15 an hour.

 

Customers who frequent Mom and Pop operations begin to ask themselves if the same $3 burger yesterday is worth $7 today. The answer from consumers is often “No.” In fact, the answer is often to eat out less frequently all together.

 

The living wage advocates often say that the costs of providing a living wage can easily be absorbed by the fat cats on Wall Street. They tend to forget about Mr. or Mrs. small business. The small business is expected to pay more no matter their case. The slogan of “It’s only fair” takes hold.

 

Meanwhile, back home, the same Mom and Pop’s restaurant is looking for a way to cut costs but not service. This is necessary just for the business to survive. Profit goals have been replaced by a simply breaking even. Neither Mom nor Pop will be retiring anytime soon. The future looks bleak.

 

In the nick of time a new business arrives to save the small restaurant owners like Mom and Pop from the living wage disaster. The handy-dandy kiosk company offers a life raft to small business. The prospect of profit returns.

 

The new technology allows Mom and Pop to eliminate the four register clerks by allowing customers to order for themselves and pay at terminals right in the store. How fair is that?

 

The price of a burger drops from $7 to $5. The profits return because Mom and Pop do the same business at slightly higher prices and have cut their costs by letting four employees go. Remember the saying – it’s not personal, it’s business? That can be applied here.

 

When Mom and Pop’s activity is copied by the rest of the small businesses facing the same fate, unemployment increases at a rapid pace. The local cost-of-living increases by making goods and services more expensive for the average purchaser.

 

Many of the people who were to benefit from the newly increased minimum wage are now the newly unemployed. The ones lucky enough to benefit from the increase find themselves in a higher tax bracket, paying more for basics than they did before.

 

The professionals saw their wage increased but also pay more in taxes and more for local goods. The system designed to spread the wealth and close the income gap fails.

 

Be careful Montgomery County. Unskilled labor might cost more in your county, but you may very well find your local dollar is worth less. Like an elaborate economic Merry-Go-Round, you might land right back to where you started from, but the cost-of-living rises along with the unemployment rate.

 

The result? Economic misery, but only if you believe progressive economist Arthur Okun, who happened to be a chief economic adviser to President Lyndon Johnson during the “War on Poverty.”



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