Will Raising the Minimum Wage Cause Rents to Increase?

18 Jul Will Raising the Minimum Wage Cause Rents to Increase?

Our students have asked more than once, “Will raising the minimum wage cause rents to increase?” This question is in response to the state of Illinois passing a feel good bill raising the minimum wage in the state of Illinois to $15.00 an hour, over the next few years.

Two Party System

As a general rule, neither Democrats nor Republicans have any real concept of what meddling with the economy will cause. Predominately they appear to chase the sound bite and seek reelection, rather than serving our country. Party politics is the greatest evil our nation currently faces.

Wage & Price Freeze

A prime example of government interference is President Nixon. He froze wages and prices to combat inflation. The result was something else entirely. Employers had to find new incentives to attract and hire the best and the brightest. Vacation time was increased. More importantly, nationwide employee benefits appear for the first time in our country’s history. In spite of the president’s efforts, inflation continued its merry jaunt into the future.

Affordable Healthcare

A direct result of Nixon’s mistake was the government tampering with the health care system during the Obama administration. As it turn’s out, the “Affordable Care Act” was neither.

For those of us who are self employed, our premiums were massively increased from affordable to inexcusable. Personally our health insurance went from $250 a month to $1,250 a month in only 6 years. All of which is easily seen as due to government interference.

How does this tie to Nixon you ask? Employer sponsored health insurance was unheard of prior to the Nixon Administration. Additionally prior to 1990, health care was affordable.

Will Raising the Minimum Wage Cause Rents to Increase?

So back to the topic at hand, Here is my view on minimum wage laws and any other form of government interference in the market place.

An increase in minimum wage results in LESS discretionary income for almost everyone. Full time workers will frequently end up being part time workers. This exact thing came true after the passage of the Affordable Care Act. When that law was passed our youngest daughter and hundreds of thousands of others were made part time. Part time employment means the loss of many benefits at work, specifically health care. Our daughter ended up working two jobs to make ends meet until finding her next position some time later. 

Marginal Workers

Not everyone is a 110% employee. Many who are not will end up unemployed. Those who were satisfactory at $10.00 will face a new level of scrutiny. They will need to step up their game or be replaced with either a better worker, or some form of automation or robotics. Look for a spike in Illinois unemployment claims that will be blamed on whoever is president at the time.

Full Time Workers

Full time employees will more likely as not, become part time employees. Part time employees do not receive full benefits packages. Things like 401K match, health insurance, dental, vision – whatever it will go away. For every dollar of wage increase forced on an employer the employee will stand to lose up to twice that in benefits.

Overtime

Working over 40 hours a week is called overtime. Pay varies from time and a half to double time depending on the pay scale. This employee benefit will become less frequent. When overtime pay is $30 an hour employers in every industry are facing an hourly cost of over $33 an hour per employee.  This cost only takes intp account the wages paid and the employer match for employee withholding taxes. It does not include the cost of health care and other benefits. A savvy employer will hire extra part time employees who are each receiving less than 30 hours a week to control this cost..

Holiday Pay

Those who think workers should be at home with their families on holidays will get their wish. It will not be that the employer is closing down to “Honor” the holiday. They will be closing because it is no longer cost effective. The other option is the elimination of Holiday pay entirely.

Union Workers

Union dues are tied to wages. If the wages go up the associated union dues will rise as well.

Impact on Small Business

Small business owners will let trusted employees go since they can no longer afford them.

We will have a rash of failures in small business. The pundits and powers that be will blame the administration in power for the loss. No one will admit the problem was triggered by minimum wage meddling.

Competition:

Chicago will start to decline in popularity as a conference and tourist destination. Other states which can accommodate the visitors at a reduced price will start to rise in popularity.

The Employee Side

With an increase from $10 to $15.00 an hour the uneducated worker will figure they have an additional (40 hrs at $5) $200 in discretionary income. Many will find this as the best time to go out and over spend. There will be a short term BONANZA of spending followed by a period of failure and readjustment.

If the government really wanted to help these people there would be more GEDs, trade schools and creating BETTER PAYING JOBS for highly skilled workers. 

Increased Evictions

In my opinion, what you will see is people earning better wages being evicted at a higher frequency.

Rent Control

Local and state governments will rally around rent control as the solution to the probable and inevitable rent increases.

Government interference disrupts the free market economy in unintended ways.

Recommended Reading

The next two books everyone needs to read are these.

1.  “Restoring the American Dream” by Robert J. Ringer written in the 80s it was recently updated and a new edition is available to another generation of readers and critical thinkers.

2. “The Voter’s Handbook” by Judge James P. Gray retired. – 2010 The Forum Press. It is a great how two guide of regaining control of our government in little steps.

Both of these authors have insights from geniuses like Milton Freedman the economist which they present in understandable bites.

Summary

Rents will go up. They will continue to rise for a myriad of reasons that includes an increase in the minimum wage. Wage increases will cause the costs of every building material and service that a property owner needs to climb. Lumber, drywall, plumbing and everything else will rise in cost due to an increase in the minimum wage.

Good Luck and Good Investing

George Skidis