Minimum Wage is a Lose-Lose

This is a big subject. And it’s one that sadly keeps coming up in our political climate! Let’s just RAISE THE MINIMUM WAGE! The poor Poor are suffering. We are selfish for not wanting to help them. “Big Business” is greedy and keeping the little man down.

But this is all political hype and distraction from the TRUE economic issues. The fact is: if we increase the minimum wage the cost of labor goes up. Simple. Period. If we raise the minimum wage, the people we are trying to help will suffer the most. Because it translates to LESS jobs. So an overall impact on the economy is less work for people who need it most (those seeking low-level employment).

Think of a simple example – McDonalds. Let’s say right now they employ 10 people at $7.00/hr and this allows them to charge $1.00 for a hamburger. If the minimum wage goes up – say to 15.00/hr – this will cause McDonalds to LET GO a number of its employees in order to keep charging $1.00 for its hamburger. So now only 5 or 6 people will be employed instead of 10! (OR – they cut hours for everyone. But let’s not go into that example for simplicity). Sure, those 5 people who kept their job may better, but what about the 5 people who are now out of work completely! They now have to find another job (increasing unemployment further) and/or now go on the government dole (i.e. unemployment or welfare). Net result: we wind up picking up the tab for once productive employees.

OR – another result: let’s say McDonalds only fires 2 people. But now they have to increase the cost of the hamburger to $1.50 or $2.00. So now fewer people buy their product because their cost of goods sold (for which labor is a factor) has artificially increased. So at the end of the day the entire populace is negatively impacted by higher costs for goods they want to buy. Right now we’re only talking burgers … but it’s across the board for pretty much most commodities: milk, oil, gas, eggs, etc etc. So we ALL will suffer as a result.

There is a litany of examples out there is explaining this impact. Most economics books discuss how artificial price floors or ceilings are detrimental to the overall economy though. I learned this day one in my Economics class in college.

So what if there was NO minimum wage? Would there be anarchy and rampant joblessness? Would people starve and babies die? Let’s see:

3 Comments

  • What are the specific objections of economists to the minimum wage and why do they generally favor market wages instead? Here are ten reasons in favor of market wages over a government-mandated minimum wage:

    1. Proposed minimum wages are almost always arbitrary and never based on sound economic analysis. Why $10.10 an hour and not $9.10? Why $15 an hour and not $16 an hour?

    2. A uniform federal minimum wage may be sub-optimal for many states, and uniform state minimum wages may be sub-optimal for many cities. A one-size-fits-all approach to the minimum wage is really a “one-size-fits-none.”

    3. Minimum wage laws require costly taxpayer-funded monitoring and enforcement mechanisms, whereas market wages don’t.

    4. Minimum wage laws discriminate against unskilled workers in favor of skilled workers, and the greatest amount of discrimination takes place against minority groups, like blacks.

    5. Adjustments to total compensation following minimum wage laws will disadvantage workers in the form of reduced hours, reduced fringe benefits, and reduced on-the-job training.

    6. Many unskilled workers will be unable to find work and will be denied valuable on-the-job training and the opportunity to acquire experience and skills.

    7. Minimum wage laws prevent mutually advantageous, voluntary labor agreements between employers and employees from taking place.

    8. To the extent that higher minimum wages result in lower firm profits and higher retail prices, that’s a form of legal plunder by workers from employers and consumers that is objectionable.

    9. Market-determined wages are efficient, whereas government-mandated wages create distortions in the labor markets that prevent labor markets from clearing.

    10. Like all government price controls, minimum wage laws are distortionary. If you trust government officials and politicians to legislate and enforce a minimum wage for unskilled workers, you should logically trust those same bureaucrats to set all prices, wages and interest rates in the economy. Realistically, if you agree that those economy-wide price controls would be undesirable, then you should also agree that the minimum wage law is also undesirable.

    In summary, economists are not unconcerned about unskilled workers, we are actually very concerned about those workers. And it is because of that concern to maximize employment opportunities that economists oppose the minimum wage. Simply put, we would rather see unskilled workers employed at a market wage – even if that wage is only $5, $6 an hour – that allows them to gain valuable work experience and on-the-job training, than to be unemployed at $0.00 an hour. And unfortunately, a $15 minimum wage maximizes the probability that an unskilled worker will be unemployed at $0.00 an hour instead of being gainfully employed.

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