The Iowa Legislature recently passed a measure raising the state’s minimum wage in two $1.05 increments to $7.25 per hour. This measure passed with strong bipartisan support and was signed into law by Gov. Chet Culver. While the intent may be good, and the cause may be noble, the result is neither. Politics has superseded basic market economics such that a “feel good” solution is provided instead of long-term solution.

We must remember how wages are determined. Ask any employer how they determine what to pay one of their employees and they will likely tell you it is two factors: labor supply and skill level. With an unemployment rate hovering around 4 percent, the labor supply in Oskaloosa as well as the state of Iowa continues to contract. There are a few employers that pay their entry-level employees at the minimum wage. Employers are unable to attract workers unless they pay higher than the minimum wage. This is evident in all sectors of the economy including the retail and fast food sectors.

Another major factor in determining the wage of an employee is the skills that they bring to their job. Many of the workers that are being paid minimum wage or $7.25 or less are workers that are either new to the labor force, or have few skills. Wages need to be determined by the skill level of the worker, not by an arbitrary decision made by the Legislature. We must understand that the minimum wage is not intended to provide a family supporting wage. Instead, higher wages are the result of workers possessing the necessary skills and talents to increase a business’ productivity.

The problem with a complex economic debate such as this one is that the public is given conflicting statistics and information. Information on this issue can be found from a variety of sources. The Iowa Policy Project is one source that has been cited often in newspapers and by legislators. The Iowa Policy Project states that a raise in the minimum wage will affect 257,000 Iowa workers or 18 percent of the total work force. It is interesting to note that from those statistics only 128,000 earn less than $7.25 per hour, and of those, only 31,000 earn less than $6.15 per hour. So what about the other 127,000? Well, they earn more than $7.25 per hour, but it is estimated that they too will receive a wage increase due to employers having to modify their existing employee wage structure.

The Employment Policies Institute provides statistics and data that paint a very different picture. Their study indicates that a raise in the minimum wage would result in job losses and would negatively affect those persons most in need of employment. In both cases, data can be shown to support their argument.

We do have actual data on how a raise in the minimum wage would affect Oskaloosa employers. As reported previously in this paper, the increase in the state minimum wage to $7.25 per hour would increase labor costs for one employer by almost $50,000 per year.

Changes in the minimum wage will have real impacts in Oskaloosa. Prices will go up and consumers will pay more. Because of higher labor costs, fewer people will be hired which will deny them entry into the labor force to build a work history to be eligible for higher wages.

From an economic perspective, the biggest problem regarding raising the minimum wage is that the minimum wage does not address the underlying problem. The minimum wage may increase a worker’s annual salary by $2,100 per year, but it does not address their lack of marketable skills, which is the true determinant a person’s value to their employer and hence, their wage.

Regardless of the economic and philosophical debate regarding the minimum wage, it is now the law of the land. Employers, economists, and academics will have to examine and debate the long-term effects of this policy. Still, the issue of how to provide employers with skilled labor remains. Raising the minimum wage does not change this. Oskaloosa, Mahaska County, and the state of Iowa will need to find ways to address this problem, as well as a shrinking labor pool.

The key to higher wages is skill development and educational attainment, not governmental mandate. If the Legislature wants to improve the economic well being of low wage earners, they should provide economic incentives to employers and individuals to obtain skills or improve them. To paraphrase the Chinese proverb, “Give a man a wage and you feed him for a day. Teach a man a skill and you feed him and his family for a lifetime.”

— The Herald Editorial Board