Minimum Wage
It is tragic, when one person sets out to help another, with the best of intentions, and ends up doing far more harm than good. The tragedy is compounded when the would-be good Samaritan goes to bed at night and sleeps soundly with the thought that he has done good deeds, and promises to do more of the same tomorrow, while those he “helped” are sinking further into ruin.
Those who sleep, content that their efforts to raise the minimum wage has helped people, and who promise to do more of the same tomorrow, fall under this description.
The idea is simple. “If I get the government to increase the minimum wage by $1.00 per hour, then I have put an additional $1.00 — minus tax — into the pockets of everybody earning the current minimum wage or less.” These are people who need the money for housing, medical care, child care, or education. This has made the world a better place.
Where did this money come from? Did it pop into the world out of nothing? Or did it come out of somebody else’s pocket? If so, then whose?
An increase in the minimum wage actually throws minimum-wage employees into unemployment, so that their wages can be redistributed among those who get to keep their jobs. The transfer is not actually from the rich to the poor, it is from the poor to the poor. These laws destroy jobs and opportunities for the poor, and redistribute the savings from those who lose their jobs and opportunities to those lucky enough to keep their jobs.
The Effects of a Higher Minimum Wage
There are four ways in which increasing the minimum wage hurts the people it aims to help.
First, in any economy there are some businesses that are succeeding, some that will fail, and some that sit near the border barely hanging on. Today, they are making enough to keep the doors open. Tomorrow, with the added burden of a higher minimum wage, they slip below the line and close their doors. Rather than making an extra dollar per hour, these employees lose their livelihood. They have not been made better off as well.
Second, the employer could try to get the money it needs to pay its minimum-wage employees by raising prices. Of course, if it raises its prices, then it will probably have fewer customers. If the business has fewer customers, then it does not need as many employees. Therefore, it lays some of the employees off, effectively redistributing their paycheck among those employees who get to keep their jobs.
Third, it becomes more profitable for the company to invest in automation. Minimum-wage jobs are typically just the types of jobs that are easy to automate. There are certainly going to be companies for whom automation just is not cost effective at the moment. However, an increase in the minimum wage will tilt the balance in favor of automation. With past increases in the minimum wage, we saw the rise in self-service gas stations. The next increase in the minimum wage will see a boom in self-service (automated) checkout stations in supermarkets.
Fourth, a higher minimum wage draws people into the labor market that would otherwise have stayed out. This means that those with jobs will have to compete against a larger labor pool to keep those jobs. One of the biggest sources of new labor are high-school students. There are always some high-school students who consider working and dropping out of school a better option. The more profitable it becomes to drop out of school, the larger the number of high-school students who will pursue this option. Many of these new workers will force existing minimum-wage employees out of the market. The result of fighting for this increase then is to put high school students in minimum wage jobs, and put the people who already have those jobs on the unemployment line.
In short, raising the minimum wage means that there are fewer job opportunities available for less-skilled workers and more people competing for those fewer jobs. It is inspired by a desire to help these people -- which is a noble goal. However, those good people are being reckless in their actions and ultimately hurting the people they seek to help. The effect of their “help” is that a lot of people go from having a meager paycheck to having no paycheck at all.
A part of this tragedy is that many of these low-paying jobs are entry-level positions. People who get them have a chance to learn about other positions, demonstrate good work habits, demonstrate to an employer what they are capable of, and ultimately move into better paying jobs. By reducing the number of jobs available at this level, advocates of a higher minimum wage are reducing the number of opportunities low income workers have to take this path.
Scope
The issue of the minimum wage is much larger than is presented here.
Where we are concerned with wages, we must also consider the effect that a higher minimum wage may have on other benefits. Another way that companies can save money to compensate for what it pays out in higher wagers is to lower benefits. Rather than looking at the wages per hour, we really need to be looking at the total value of the wage package in determining if employees benefit from a higher minimum wage.
We must also consider such issues as who gets to keep their jobs and whose jobs are at risk. Employers have the ability to hire whomever they want. We cannot pretend that the difficulties in finding work will be evenly distributed among minimum-wage employees. Some are more likely to acquire the increased wage and will certainly benefit. For others, the chance of being among those who are made to suffer is higher than average. For the least skilled, and those who tend to face discrimination in hiring for any reason, there is reason to believe that a higher minimum wage will make things that much worse.
What are the effects on prices? I mentioned above that some companies can pay for their increased wage costs by increasing their prices. If their prices go up, they may face lower demand for their product and can afford to reduce worker hours. However, all wage earners will have to live with the higher prices.
The Education Option
There are those who will immediately assume that any who argue against a higher minimum wage are corporate stooges who are simply looking for ways to make rich people richer regardless of how worse off poor people become. Somehow, they have the capacity to ignore the fact that an essay such as this is concerned entirely with how poor people are being harmed, the assumption is that nobody who writes such an essay could have any concern with the poor.
A person truly concerned with helping others have a duty to make sure that their plans actually help them. A person truly concerned with helping others will look at these questions and worry, “Am I actually doing the best that I can do for these people?”
There is a way to help these people that does not involve pulling the rug out from under some of them. The best thing to do is to train them to take on other, higher-paying job.
The “minimum wage,” rather than being the least amount a company can pay an employee, could become the amount below which an individual will be eligible for educational assistance. Anybody making less than this “minimum wage” should automatically qualify for school credits which can be used to obtain training for a higher-paying job.
Where would this money come from? It should come from those who benefit.
Those who obtain an education in this type of program certainly benefits. Procedures could be set up where those who draw out of this fund in order to improve their station in life pay back into it as their situation actually improves. For example, they could get their assistance in the form of loans that are repaid with interest. This will not be enough to cover the cost of the program, but it will mitigate some of the cost.
The system will provide a benefit to employers by giving them a larger pool of educated workers to draw from. These costs could be figured into corporate income taxes.
Finally, we all benefit when our neighbors and fellow citizens are better educated. They make better decisions, and some of those decisions affect the rest of us. They have more potential, which means a greater ability to contribute to society as a whole, both on the job and off of the job. It is reasonable that some of this cost should come out of general tax revenue.
A fourth group would also likely benefit. As individuals on the lower rungs of the economic ladder climb up, employers will be forced to compete for the fewer numbers of workers at that level. This competition would likely force those wages higher. These higher wages may still force some businesses to close, force others to raise prices and reduce work hours for their employees, and provide incentives for automation. However, they will be doing this in response to a genuine shortage of workers, forcing them to look at alternatives. This is not a situation that leaves willing workers unable to find work.