Suppose that your inflation-adjusted budget hasn’t changed in (say) four years. You’re now asked to get by for the next little while – a few weeks, a few months, perhaps a year – with (say) three percent less money in your budget than before.
If you are an employer of low-skilled workers, you are assumed by many folks, including some prominent economists, to be able to adjust to such a modest, government-enforced – and permanent - tightening of your budget constraint by working your low-skilled workers harder and smarter in order to accommodate your bottom line to a higher legislated minimum wage. Modestly higher wage costs mean simply, or at least chiefly, harder and smarter working of low-skilled workers. (Note, by the way, that Mr. Obama’s proposed ‘modest’ hike in the minimum wage is in excess of 24 percent. But put that detail to the side.)
But if you are Uncle Sam, a three percent reduction in your budget means that you are on the verge of collapse.
Seriously, if employers of low-skilled workers can, in order to remain profitable in the face of a 24-percent increase in the minimum wage, rather easily and with success adjust the ways they manage and work low-skilled employees, why cannot Uncle Sam, in order to continue to ‘serve’ the public as before, adjust the ways it manages and works its employees so that the effects of a 3-percent budget ‘cut’ are unnoticed by the general public?