Minimum Wage Gains: An Oxymoron.
Today AHN posted an article (“Waitress Lauds Minimum Wage Hike During Democratic Radio Address”) celebrating the first increase in the nation’s minimum wage. A waitress was quoted saying,
“Millions of Americans now have a little more in their paychecks to help pay for basic necessities like food and clothing. And now more Americans can save to build a better future for themselves and their families.”
Millions now can pay for basic necessities? More Americans can save to build a better future?
Wrong.
Advocates of higher minimum wage laws claim that such legislation will increase the purchasing power of workers; however, common sense proves that money will not appear just because the legislature passes a law declaring that it will.
Where will the money come from? The money will come from the businesses that employ the minimum wage workers, but the cost will be passed along to you, resulting in lost jobs, lost benefits, and higher prices for everyone.
The first law of economics is easy to understand: when you raise the price of a commodity, the demand for that commodity will go down. The commodity in this case is labor; when businesses have to pay more for labor, they will cut jobs and cut hours.
This means than unemployment will be on the rise, and more people will end up working part-time and losing full time benefits like health care and pension plans.
Uneducated adults are usually the first to go as businesses favor hiring better educated teenagers who oftentimes hail from middle class families. These teenagers are easier to train; consequently, employers seeking to assuage the pressure, which comes with dramatic payroll costs, will turn to them first.
Moreover, a higher minimum wage will just create an incentive for businesses to mechanize labor. Think about that self-checkout lane at your nearest grocery store; it was designed to cut the cost of labor. When you make labor even more expensive via raising the minimum wage companies will look to even more machines to cut their costs.
What about the industries that need all the workers that they have hired and cannot mechanize? Surely these workers will benefit from an increased minimum wage! Think again. Companies will simply shift costs to consumers via raising prices. The purchasing power of their workers may go up, but with soaring prices, a marginal rise in salary will do little good.
No obviously related posts.
I pretty much said the same thing in response to that quote. It is unbelievable how many people can’t grasp simple economics. This is just another one of those “lets make people feel good” laws that will hurt more than it helps.
It will also increase the incentive to use illegal aliens. No minimum wage. No Social Security. No workman’s compensation. No local head taxes.
The big drivers behind minimum-wage-increase laws are those whose pay rates are indexed to minimum-wage…
Any guesses who that might be
ZD – that incentive is already there. Illegals aren’t hurting for work. But you’re point is valid, in that the demand for illegals will increase, which could lead to more of them crossing the border.
IA – ummmm… I’ll guess the Unions. They don’t even have to go on strike to get a wage increase this time.
There is the case where the minimum wage is far below the equilibrium for the prevailing market wage, and the increase still keeps the below that equilibrium. In that case the wage increase wouldn’t have much economic effect either way, either on people’s incomes or on the demand for labor.
Deb is correct that it will increase the demand for illegal labor, and drive more of the labor market into the informal economy.
Greg – yeah; it’s been my understanding that union pay structure is like that. Never worked a union job in my life; so it’s all secondhand.
As a side note, expect the price of a combo-meal to go up. I’ve noted that minimum wage and the cost of a burger, drink, and fries tend to stay pretty close to one another.
I suppose this won’t affect states that have higher minimum wages?
“When you make labor even more expensive via raising the minimum wage companies will look to even more machines to cut their costs”…and this is not necessarily a bad thing, because that’s how productivity improves and continuous improvement in incomes is made possible.
I don’t think the present minimum wage increase will do either much good or much harm. A much bigger issue is that American schools are turning out millions of kids without the skills to get jobs that pay *above* minimum wage. See for example this story about manufacturers who can’t find entry-level workers, despite high unemployment in the area.
Isn’t it ironic that a waitress gives an opinion on the minimum wage? Most wait-staff earn well below the minimum wage, but make up for it in tips.
Don’t forget that even most of the “working poor” aren’t working for minimum wage – the people working for minimum wage are, last I checked, mostly middle class teenagers.
Raising the minimum wage doesn’t give “millions of families” more money for food. It mostly gives kids working at McDonalds (in places where they weren’t already paying more than minimum!) some more money.
I understand the notion that you can’t just will more money into existence, but one could make an argument that the “market set” minimum wage has been pushed artificially low by other interference with the economy by the government and by illegal aliens and so long as the official minimum wage is set to that level or lower, it really won’t affect much – one can also look at the states that have long had higher minimum wages than the Federal and see that they haven’t had resulting unemployment.
But one thing that seems to get missed is that those who make minimum wage tend to be those who, out of necessity, spend all that they make – so all of that money will go right back into the communities, right back into those businesses that are paying more for workers. So if Bob’s Pizzaria now has to increase his wages 10% because of the increased minimum wage, that means all of his workers, and all of the other thousand workers making minimum wage in his business zone will be making 10% more money – and whose to say that this won’t cause them to buy 10% more pizza than usual, pushing UP his business. At the very least, it would reach an equilibrium in some sectors. You might ask, what’s the point, then? That’s just inflation – but pushing up minimum wage doesn’t raise the wages on all jobs – my job’s wages have no connection to minimum wage at all (I’m a lawyer). I think in the end, it will benefit more than it would hurt.
Plus, one has to keep in mind that employers who don’t pay a living wage end up costing ALL of us because who do you think pays for the difference, via various welfare programs, uninsured ER visits, etc.?
To the extent that a minimum-wage increase will increase the spending money of the earners, it will also increase the prices of goods and services that they consume, eventually settling into a new equilibrium.
Ian, it would not necessarily push up the costs of ALL goods and services – very few goods or services come ultimately from minimum wage earners. My services aren’t affected by minimum wage at all. So now I potentially have a larger pool of clients because my price is the same while the pool of people who can perhaps afford me have now increased.
DBB…increasing the minimum wage does not put more money in circulation. To the extent that the pizza place doesn’t raise prices, it has less money to spend on other things like advertising and legal services. To the extent it *does* raise prices, its customers have less money to spend on other things.
Also, it’s not at all clear that money in the hands of the people who save some of it does less good for the economy than people who spend all they make. It is savings/investment that makes possible capital improvements leading to higher productivity, and new businesses leading to higher employment.
No – but it pushes up the cost of goods/services they do consume – so they don’t end up having free money to consume new goods/services. Plus, since each individual now costs the employer more, there are less employed. This probably won’t have all that big an effect – as noted above, there’s damn few people actually making minimum wage. Though the costs of goods/services produced using labor whose compensation is indexed to minimum wage will go go, most likely. Expect the cost of american automotive to go up…
They just spiked up MW in Illinois. So far the “benefits” have been an increase in food prices, my wife losing her 3rd shift bonus for her part-time job, and the local temp agency renegotiating their contract to eliminate paid holidays.
I’m still doing the same job for the same money so the value of my labor’s been decreased.
Nothing government does is unaffected by toxins.
Something I’ve never found evidence for, is the claim that raising the minimum wage causes higher unemployment. It never has done that. Not once. As to costs going up, costs have gone up anyways, wages have actually lagged behind inflation the past few years. As it stands, the money being made today is, more and more, staying up at the top. Trickle down economics is a nice theory, but, much like communism, it doesn’t work.
That’s probably because the minimum wage is set lower than equilibrium for labor in the US. How many jobs these days actually pay minimum wage?
If people on the low end of the spectrum are generally make 6-7 dollars an hour, raising it to 6 dollars won’t have much effect. If you raise it to 10 dollars, then you’ll see some unemployment effects.
Also, it will also tend to drive lower wage earners into the informal economy, which is something that’s difficult to measure.
Thanks, Sebastian. I know of some examples from the northwest where they do have a minimum wage significantly higher than the federal baseline, and it does seem to keep their unemployemnt a little higher than the national average. Secondly, it causes a chunk of jobs that would, in other locations, pay higher than minumum wage (higher than the minimum wage in these locations, even) to be paid minimum wage because jobs that would otherwise pay lower suck up the money that would be used to compensate more skilled laborers.