Bernie Sanders Shows Us How A Minimum Wage Hike Hurts Workers

The Washington Post reported last week that some workers on the Bernie Sanders campaign for calling for a wage increase to a the equivalent of 15 dollars per hour. This, of course, is the hourly rate which Sanders has long pushed for in legislation and on the campaign trail.

But that's more than what many Sanders employees make per hour.

Many campaign workers are salaried, so the problem lies in the fact that total campaign salaries, when calculated on a per-hour-worked basis, come out to less than $15 per hour. Many employees work around 60 hours per week — as is often typical for full-time workers on a presidential campaign.

As reported by the Des Moines Register,

For a staffer working 40 hours a week, [the typical campaign salary] comes out to about $17 an hour. But 40-hour workweeks on presidential campaigns are rare.

So, some Sanders employees have complained they aren't earning a "living wage" and have demanded Sanders raise wages immediately. Recognizing the bad optics of the situation, Sanders apparently began looking for a way to raise the per-hour wage.

But how to do it?

If we use the typical rhetoric surrounding the minimum wage debate, then the answer is simple: the employer — in this case, Bernie Sanders — should take a pay cut or reduce his own wealth in order to pay employees more.

After all, this is what we typically hear about why employees are not paid more: they are only paid so "little" because the owners are "greedy" or unwilling to share the wealth.

In Sanders's case specifically, we could conclude he should be willing to sell off some of his substantial real estate holdings or devote some of his income from book sales to paying his employees more.

[RELATED: "Bernie Tells America: Pull Yourself up by Your Bootstraps!" by Ryan McMaken]

So what is Sanders's solution?

Not a Raise in Terms of Total Income

According to the Register:

Sanders said the campaign will limit the number of hours staffers work to 42 or 43 each week to ensure they're making the equivalent of $15 an hour.

It's not really an increase in total earnings for workers, of course, although workers do now have time to work a second job. Workers won't be getting any closer to that "living wage" they keep talking about, but by cutting hours for salaried workers, the campaign can claim it raised hourly wages. The move is a masterstroke of cynical public relations.

There are a couple of things we can learn from this.

First of all, we learn that Sanders is not willing to put his money where his mouth is. He's not willing to use any additional portion of his personal wealth to supplement worker wages.

He is willing to cut back on campaign activities to raise the per-hour wage. In other words, by cutting worker hours, the Sanders campaign elected to provide fewer "services" in the form of campaign activities. In practice, this will likely mean fewer rallies, less travel, or fewer television ads.

Ironically, in non-monetary terms, this may nonetheless turn out to represent a very real pay cut for campaign workers anyway. After all, it is likely that most people who go to work for the Sanders campaign do so because they want to see Sanders elected. Yes, they want to receive money wages, too, and many may also be interested in building a career as a professional campaign consultant. But for many of these workers, they also receive "payment" in the form of getting Sanders elected and "getting his message out."

But if paying a higher per-hour wage means cutting back total campaign work, then this hobbles the campaign and means there will be less of that "getting the word out." It may also mean Sanders ultimately loses the race. Presidential primaries are often won or lost by very slim margins. Thus, by demanding $15 per hour, the employees are reducing their non-monetary compensation which might have been earned in the form of a Sanders victory.

The Long Term Effects Will Likely Lead to a Pay Cut in Monetary Terms As Well

Moreover, if the Sanders campaign loses, this will have significant impacts on the ability of many campaign workers to obtain jobs within a new Sanders administration as administrators and political advisors. That is, a Sanders loss will mean Sanders workers will have greater trouble finding new jobs as government employees or on other future campaigns.So losses will be monetary as well. By hurting the campaign's chances for success, those who demanded higher pay are also damaging their future career prospects.

Although the Sanders campaign is, well, a political campaign, we also find applicability to the for-profit private sector.

Say, for example, a firm paying 12 dollars per hour is compelled to begin paying 15 dollars per hour. This change could be due to legislation, or unionization, or merely though a public relations campaign shaming the company into paying more per hour.

The Sanders campaign, when faced with public shaming, sliced worker hours. But there are other strategies as well. For example, an employer could forego new hiring, and attempt instead to substitute labor-saving devices for workers. These devices could be anything from automobile-building robots to self-serve scanners at the supermarket. An employer could also reduce the range of goods and services, eliminating the more labor-intensive ones. At a restaurant, for example, an employer could remove — or refrain from adding — more labor-intensive menu items.

Or, employers could move toward types of services that require fewer employees. We see this in the rise of "fast casual" dining in which patrons order their food at a counter and bus their own tables. Fewer waiters means lower labor costs.

All of these options could then allow the employer to cut back hours without actually laying off workers.

Losing Out to the Big Firms

But here's the rub in all of this: by cutting out services or scaling back on products, a firm is making itself less competitive.

Now, in the case of a system-wide wage hike — as with a legislated minimum wage hike — some might say, "that's not a problem because all employers have to pay more. So no one gets a competitive advantage.

But this isn't true in practice. Some firms — mostly larger established firms — will be able to weather a mandatory pay hike better than other firms.

A firm that already has more market share — for example — will be able to outlast a firm that has less market share. The same is true with a firm that has lower per-unit costs due to economies of scale. Forced to pay higher wages, a smaller firm also now has fewer resources to develop new and innovative products designed to take market share away from the larger firms. At the same time, larger firms can more easily borrow money and find the resources necessary to replace workers with kiosks and robots. Small firms who lack much access to capital will lose out.1

The result will be concentration in the industry: smaller and less-capitalized firms will go out of business. Larger firms will gain even more market share. Ultimately, consumers will pay more as a small number of firms can then raise prices more easily. And workers will have fewer options among potential employers — and this will mean wage compression at all levels above the mandated minimum.

Thus, not only will a minimum wage hike mean fewer products and services offered per firm, it may also mean fewer firms providing products and services.

It's debatable, of course, whether or not the Sanders campaign provides a "service" many people want. But by cutting back on total hours in order to pay higher hourly wages, the Sanders campaign is illustrating what private firms must do whenever government regulators and legislators raise costs: they must become less competitive.

The result is workers working less, firms offering fewer services, and smaller start-ups losing out to bigger competitors.

Unfortunately, Sanders is unlikely to learn anything from the experience.

**This article was re-published from Mises.org (MisesWire) by Ryan McMaken.**