Minimum Wage, Maximum Unemployment?

Minimum Wage, Maximum Unemployment?

flipping hamburgersby Rebecca Mallory

Who Wants to Be a Millionaire?” Remember that show? They should do a remake: “Who Just Wants to Take Home What They Did Five Years Ago?” There never seems to be enough at the end of the month. If you live in a free capitalist society, you can always be assured that someone will make a lot more than you and someone will make a lot less than you. Many people, especially politicians, feel that this isn’t fair. That everyone should be equal and no one should have more advantage than another. This ludicrous concept has been a hot topic of debate since caveman days. The American constitution ensures that “all men are created equal” NOT “all men are guaranteed equal results.” One way many politicians have distorted and misinterpreted the constitution is by legislating and “redistributing” wealth through minimum wage laws.

Anyone with a heart would first react to this proposal as a great idea. Of course raising someone’s pay is a good idea, right? But with most government-mandated programs, there are oodles of unintended consequences. Most non-economists believe that minimum wage laws protect workers from exploitation by employers and reduce poverty. Most economists, however, believe that minimum wage laws cause unnecessary hardship for the very people they are supposed to help. Who’s right? Let’s take a look.

Contrary to what you may believe, a business’s first priority is to make money; not raise an unskilled worker’s wage. Sorry- that’s the reality. And since most people acquire their salable skills through on-the-job-training, the employer is already taking a risk on you! Low-skilled jobs get low-skilled wages. Period. If you don’t like the wage you’re making, go back to school and acquire more skill. I can almost hear the vitriol and high-pitched screams that “most people in these positions are poor and can’t afford to go back to school and improve their lot in life.” Oh contraire. Take five minutes at the local library to check the internet for free government programs begging people to go back to school at the public’s expense. But… I digress. That’s a topic for another day.

So let’s say we all think it’s a super idea to raise the minimum wage. You be the employer this time. I’ll be Suzie Lowskilledworker looking for employment. You own a hamburger joint and items on the menu range from $1.00-6.50. You offer me $5.25 per hour. I take it and realize 6 months later that I can’t live on that. Low and behold some awesome politician on a white horse swoops in and passes legislation that the minimum wage should be raised to $7.15 per hour. YEAY! I am ecstatic! But you start to panic. Why? Because you don’t care about your poor workers? That has nothing to do with it. It’s pure economics, folks. You’re barely making enough profit to meet payroll, pay rent, insurance, and have a little to support your own family. Solution? You could raise the prices of all your products thereby passing on those costs to your customer. Will your customers come back though? Or, Suzie is your most recent hire. You are forced to let her and two other employees go to make up for anticipated profits lost from this compassionate wage increase. What? I’ve now gone from $5.25 per hour to 0. What happened? Plus the workers who are still on the payroll have to double their efforts and workload to make up for the three fired employees.

Federal governments instituted minimum wage laws to ensure a basic quality of life among all citizens. Governments can use minimum wage laws to force companies to pay all individuals equally, regardless of race, creed, sex or other feature. Awesome goals. No one should be discriminated for any of those! But as mentioned above, the unintended consequences of laws are often devastating. You know who else is ecstatic about your little wage bump? The good old IRS! An increase in wage could raise your income tax liability. The IRS raises your taxes as your income increases. Additionally, high minimum wage laws significantly increase a company labor expense, potentially forcing it to lay off current employees. (see above)

     The reason is simple: although minimum wage laws can set wages, they cannot guarantee jobs. In practice they often price low-skilled workers out of the labor market. Employers typically are not willing to pay a worker more than the value of the additional product that he produces. As Princeton economist David F. Bradford wrote, “The minimum wage law can be described as saying to the potential worker: ‘Unless you can find a job paying at least the minimum wage, you may not accept employment.’”2 “Minimum Wage vs. Supply and Demand,” Wall Street Journal, April 24, 1996.

Several decades of studies have found that minimum wage laws reduce employment. At current U.S. wage levels, estimates of job losses suggest that a 10 percent increase in the minimum wage would decrease employment of low-skilled workers by 1 or 2 percent. The job losses for black U.S. teenagers have been found to be even greater, presumably because, on average, they have fewer skills. As liberal economist Paul A. Samuelson wrote in 1973, “What good does it do a black youth to know that an employer must pay him $2.00 per hour if the fact that he must be paid that amount is what keeps him from getting a job?”

Instituting higher minimum wage laws can also reduce the competition faced by union members while leaving the unskilled unemployed. Of course, employers may also respond to minimum wage laws by decreasing overall employment, substituting machines for people, moving production abroad, or shutting down labor-intensive businesses. It bears repeating, a business owner’s first priority is business not your welfare. He’s going to cut corners if he has to. He’ll be innovative and cost-conscious. That may very well nix you from the payroll.

Recently California legislators passed a $15.00 per hour minimum wage law. Yippee, right? Let’s just wait and see what happens to businesses, employees, employers and the general condition of the state. Legislation has literally driven commerce away from this beautiful state to other areas that are far more business-friendly. Keep your ears and eyes open to the repercussions of this “generous” legislation. Hey… if I’m wrong… wouldn’t that be fabulous? I will shout it from the rooftops. Stay tuned. Suzie Lowskilledworker… out.

 

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