Timothy P. Carney: Unions use minimum wage hike to quash competition

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Labor unions lobbied Congress heavily over the past few years to increase the federal minimum wage, trumpeting the cause as a struggle to help the working man. The higher minimum wage that went into effect this summer certainly helps union workers, but as last month’s uptick in unemployment shows, the benefit may come at a real cost to other American workers.

Raising the minimum wage has very little direct effect on union workers, federal government statistics suggest. Basically, minimum wage workers are not union workers. Men are more likely to be unionized, and women are more likely to earn minimum wage.

Blacks are more likely to be unionized, and whites are more likely to earn the minimum wage. Most importantly, workers under 25 and part-time labor are less likely to be in a union, but these are the demographics most likely to earn minimum wage. If you cut the data along geographical lines, you see the same pattern: Very few minimum wage workers are unionized, and very few union workers earn minimum wage.

A Heritage Foundation analysis of federal data estimated that 2.1 percent of minimum wage workers belong to a union, while 12.0 of all workers do. Unionized workers earn a mean of $23.33 per hour, compared with $18.53 for their nonunion counterparts.

Indeed, higher wages for their workers is one ofthe selling points of unions. So, if they’re already doing well on wages, why do they care so much about the minimum wage? Are they looking out for nonunionized working men and women?

More likely, union workers see a minimum wage hike as a way to reduce competition from nonunion workers. The economics of the issue are not too complex. Wages are the price that workers charge for their labor. If, as an analogy, instead of considering the labor market we considered the hamburger market, it becomes clear.

The worker is analogous to the burger-seller, and instead of selling his labor, he is selling his burgers. The employer is like the burger-buyer and like any consumer will balance quality and cost in making his decision about what to buy.

In the burger market, a consumer craving a hamburger might face a decision between Fuddruckers and McDonald’s. Clearly, the Fuddruckers burger is healthier and tastier, while the McDonald’s burger is quicker and cheaper.

If, however, the federal government were to set a minimum price for hamburgers at $5, would Washington be helping McDonald’s by boosting its prices? No, they would be hurting McDonald’s by taking away its greatest selling point: low price.

If you had to choose between a $5 McDonald’s burger (that used to be $1) and $7 Fuddruckers burger, all of the sudden, the McDonald’s discount has been slashed from $6 to $2.

In the case of the minimum wage, the new law takes away some of the incentive to hire nonunion labor by limiting the ability of workers to compete on price. If you only save a couple of bucks by hiring nonunion workers, why not go for the higher quality and hire the union guys?

Unable to compete on price after a minimum wage hike, low-wage workers either have to find a way to improve their skills and so compete on quality, or they leave the work force altogether.

Indeed, the Labor Department’s summaryon August employment situation reported that the declines in employment "were largely due to a drop in labor force participation among teenagers."

According to the Bureau of Labor Statistics, 7.7 percent of workers 16 to 19 years old were minimum wage workers in 2006. These were the McDonald’s hamburgers of the labor market — their appeal to employers was their low price. These are precisely the people who weren’t getting hired in August.

Now you see how the unions gain: If the college kid doesn’t present that much of a savings, why not hire the union worker? If only Fuddruckers had the lobbying clout of the AFL-CIO.

Examiner columnist Timothy P. Carney is senior reporter for the Evans & Novak Political Report.

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