Tuesday, July 24

The rise of minimum wage

Minimum wage has had the first of its three bumps to eventually reach $7.25 in two years. Today it went up 70¢ to $5.85. Some people are surely celebrating this triumph for the working masses who day after day toil away for a pittance. If only it were really that way.

When Congress mandates a minimum wage, as was first done in 1938 at 25¢ an hour, it makes it illegal to hire anyone for less than the minimum wage. If you were an employer and the minimum wage were $5.85, would you hire someone at $5.85 who's skills, or lack thereof, are only worth, say, $3/hour? Why would you? Businesses are not charities. Employers want the best employee they can get for what they can pay.

An example would be the student approved (yet status unknown) "living wage" referendum here on campus. It would have required the student Unions to pay a "living wage" of, I believe, at least $10.23 an hour. For that price and taking into consideration that any college campus is labor saturated, whom would the Union hire? Would they hire an undergrad? At those prices they could likely attract grad students and real adults, pushing out students who could use any job. They mean well, but haven't fully considered the consequences.

Minimum wage shuts people out of the workforce by making them illegal to hire and increases unemployment. Price floors, or a minimum price for something, create surpluses. Employers who have to pay more in salary than they would otherwise, then hire less workers.

Big companies, like national big-box retain chains who often find themselves on the other side of the table from labor groups, like minimum wage increases. They can absorb the cost of slightly more expensive labor whereas a mom-and-pop store with whom they're competing can't perhaps forcing them to close, further consolidating the big corporations' hold on the market.

Since the government wants to make it illegal for certain people to work, it then has to provide some kind of welfare to them. For simplicity, let's say minimum wage is $1 an hour, or $40 a week, then how much welfare should be given out? If the government gives anything less than the minimum wage amount to the unemployed, they're being ripped off. If welfare gives $40 a week to unemployed people, then why would someone actually do something just to get the same $40 an hour? With it still at $40, why would someone work for $50 a week? All their labor would really only be worth $10 more than they could get by doing nothing?

It's easy for politicians to promise higher wages. The positive consequences of higher wages and more money is short-term and very visible, but the negative consequences are often hidden and result over the long term: fewer people employed, more expensive products, inflation, and businesses losing their competitiveness eventually closing.

1 comment:

MommaBlogger said...

Minimum wage also makes it difficult for small businesses to make it at all. They usually only have a small amount of money to get started, and to have to pay more than they're able to, just so they can get some help, takes away from their ability to grow as a company.