Stop Pressuring Companies to Raise Wages
Wages don't matter if no one has a job.
It seems odd to have to make that point, but as President Obama embarks on a tour of the country to push companies to pay their workers more money, it's worth a reminder. The issue is not that companies do not pay enough. Many do. The issue is that too few people who can are actually working right now. Making companies raise wages, either by law or public shame, will not fix that. If anything, it could make the situation worse.
First, the facts. The most important data point to understand labor in this country is the labor force participation rate, which is the percentage of the country that can and should work, and does. Right now, that rate is at 62.8 percent, the lowest since 1978.
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There are a range of reasons for this, including the retirement of Baby Boomers, which wasn't a factor back in the Carter years. But the low rate of people working is primarily driven by people who are no longer in the workforce, having given up looking for a job.
Real economic recovery comes when these discouraged workers re-enter the labor force. Access to jobs allows them to earn wages, then pump that money back into companies' coffers through the purchase of goods and services. When people have money to spend, that is the best economic stimulus.
Pushing for a higher minimum wage or trying to strongarm businesses into paying more for their workers doesn't help put money into people pockets. Sure, a worker with a job might see a higher paycheck, but that does nothing to get people who are sitting home unemployed to get back into the labor pool. In fact, it will likely take away opportunities for the unemployed. Companies with new mandates for wages see their costs rise, and therefore lose the flexibility to hire more workers. Look for more companies to have fewer employers, just those who are making more.
The administration, of course, believes that the unemployed can be helped by extending jobless benefits, but that is a treatment for the symptom, rather than a cure for the illness. Addressing wages, rather than moving people off of taxpayer-funded government security, does nothing for long-term economic stability.
But don't expect any other policy solutions right now. Attacking businesses, small and large, is the easy move nowadays. It is easy to attack companies for how little they pay, for their focus on profits over people and their disregard for the greater good of society. Entrepreneurs and business owners know the opposite is true. They know good employees, paid and treated well, are vital to a company's success. They know that profits and success is more likely to come from an ethically run business than from a company that breaks the law. They know that capitalism frees more people than any other economic system. They know that innovation, not government, is the key to corporate success.
Entrepreneurs also know the real-world implications of forcing companies to pay more. They know such policies will force them to get rid of some workers and not hire more. Business owners, despite the criticism, know the hardest decision they make is letting go of employees. That, not a blind pursuit of profit, is the reason so many are aggressively fighting higher-wage mandates.
Yet, don't expect an honest economic debate. More and more, the value that capitalist enterprises bring to our society are discounted, as if all business are bad and need to be shamed. The only hope is that entrepreneurs, business owners and managers continue to do what they have been doing, ignoring the rhetoric and political posturing to do right by their employees, their partners and their customers. Left unmolested by wrong-headed policy, that just might get people working again.
Ray Hennessey is the former editorial director of Entrepreneur.