There is debate stirring about a possible minimum wage
increase. Obama and the Democrats
in DC are advocating a proposal to raise the minimum wage from $7.25 per hour
to $10.10 per hour.
This would actually be an increase in the minimum wage of 39%,
which is extraordinarily high, especially given the already high unemployment
rate, particularly among less skilled workers.
Overall, the American people are in a state of naivety about
the minimum wage, thinking there is such a thing as a free lunch. The majority of Americans, who support
not only a minimum wage, but also an increase in the minimum wage, do not
understand that there will be negative consequences, or they don’t think they
will be affected.
Some Republicans will speak out against raising the minimum
wage. You will find fewer who will
advocate an elimination of minimum wage laws. We also have to remember that the last time minimum wage legislation
was enacted to raise the amount, it was under George W. Bush.
Neither side is consistent, with the occasional
exceptions. If the Republicans say
that raising the minimum wage will cause higher unemployment, then why wouldn’t
they advocate getting rid of it?
There are a few who do say that, but not nearly enough.
And if the Democrats think that raising the minimum wage is
great and virtually cost free, then why not raise it to $15 per hour or $50 per
The minimum wage simply prevents employment between
consenting parties. It doesn’t
mandate that someone be hired or that someone can’t be fired. It just means that some transactions
won’t take place that otherwise would have.
If someone wants to pay another person $6 per hour to do
some manual labor and the other person is willing to do the job at that price,
then the government is telling them they are not allowed to enter into such an
agreement. If the person willing
to pay $6 is not willing to pay $7.25 (maybe soon to be higher), then the
transaction will never take place.
Like so many laws, it hurts the people most who it is purported
to help. In this case, it tends to
be younger people and those with fewer skills. These are the people most likely to lose a job or have more
difficulty in finding one.
Ironically, it is legal to hire an unpaid intern in many
circumstances. The intern would be
willing to work for no pay just to gain experience. But if the company offered to pay the intern $5 an hour,
then the transaction all of a sudden becomes illegal.
There was just a CBO report released saying that raising the
minimum wage would lead to the loss of half a million jobs by late 2016. But the report also said that it would
lift 900,000 people out of poverty, meaning it would push them above the
designated poverty line.
Of course, these numbers are meaningless. The CBO has no idea what is going to
happen. They can plug their
numbers into graphs, charts, and various computer-modeling programs, but it
can’t actually tell you how humans will react.
A 39% increase in the minimum wage could easily lead to
greater poverty. If there are that
many more people unable to find work, we really have no idea how bad the
effects could be.
The estimate of 500,000 lost jobs could easily end up much
higher than that too.
Think of a small business with about 20 employees. Half of the workers are making around
the minimum wage and the other half are making more, maybe even significantly
If the employer simply can’t make a big enough profit paying
an extra $2.85 per hour per worker, then the employer might just shut his doors
for business. The extra expense
might be around $5,000 per month.
And if any of the other workers were making around $10 per hour, how
would they feel making the same amount as the other people who have less
experience or fewer skills?
If the employer shuts down his business, then it would mean
all 20 people would be out of a job, not just the minimum wage workers.
It is also important to point out that there are a lot of
other hidden effects from minimum wage laws. An increase in the minimum wage may not lead to some people
being fired, but it could lead to jobs not being filled or jobs never being
created in the first place.
In conclusion, minimum wage laws are bad economic
policy. It will cause higher
unemployment, assuming that the mandated wage is not lower than what workers
would be paid anyway. It will also
cause lower overall productivity and it distorts market activity.
The politicians who push for a higher minimum wage are
playing on the economic ignorance of the voting population. Meanwhile, it is only hurting the
people it is supposed to help.
The minimum wage should be abolished and people should be
allowed to freely associate.