In 1938, President Franklin D. Roosevelt established the minimum wage to protect workers in the labor force. Ever since that time, the minimum wage increased 22 times, under 12 different presidents. As the minimum wage has increased throughout the years, the movement has been gaining momentum; citizens and politicians continuously advocate for a higher minimum wage, or as they would
As the minimum wage has increased throughout the years, the movement to continue rising its monetary value has been gaining momentum; citizens and politicians continuously advocate for a higher minimum wage, or as they would say, a “liveable wage.” While a higher minimum wage might sound ideal and feasible, economic statistics say otherwise. The minimum wage must be analyzed as it is, its causes and effects, rather than attaching emotions and desirable realities to the concept. The minimum wage harms low-skilled workers, increases prices for consumers, and ultimately increases unemployment.
When minimum wages are increased, employers have a tougher time justifying the high wages to mediocre employees. For example, imagine Bob and Luke live in Minnesota, where the minimum wage is $9.50/hour: Bob has all of the necessary experience and skills required to earn that amount of money per hour; however, Luke has limited expertise and skills that are not necessarily worth that much money per hour. In this case, the men’s’ employer is faced with a dilemma on whether it is worth paying Luke the same amount of money Bob earns.
If the minimum wage didn’t exist in the scenario of Bob and Luke, the employer and Luke would have been free to voluntarily negotiate an established set wage based upon what Luke can offer his company.
According to Cato.org, a 2012 analysis of the New York State minimum wage increase from $5.15 to $6.75 per hour found a ‘‘20.2 to 21.8 percent reduction in the employment of younger [and] less-educated individuals.”
While raising the minimum wage might seem helpful to the low-skilled workers, it is doing the complete opposite. Reduce, if not abolish, the minimum wage to facilitate the entry into the workforce.
The economic law of supply and demand states that the quantity of a good supplied increases as the as the market price increases, and it decreases as the market price decreases. As the minimum wage increases, so do consumer prices. When employers are forced to artificially increase the wages of their employees, they must seek ways to maintain their company profitability or economic stability. One of the most common ways to maintain a company stable or healthy is by increasing prices, which ultimately affects consumers. For example, if McDonald’s was forced to increase their minimum wage to $20 per hour, it is almost impossible for the corporation to maintain their current prices, which are an average of $7 per meal. Citizens are so focused on the employee that they fail to acknowledge what the effects of these policies are
For example, if McDonald’s was forced to increase its minimum wage to $20 per hour, it would be almost impossible for the corporation to maintain its current prices, which are an average of $7 per meal. Citizens are so focused on the employee that they fail to acknowledge what the effects of these policies might be from a broader perspective.
Throughout the nation, cities like Seattle, Washington, and San Francisco, California, have increased their minimum wages to $15/hour in the current trend “#FightFor15.” Since Seattle’s $15 minimum wage implementation, trends have shown a reduction in employment, as employers have been purchasing less low-skill labor. The minimum wage plays a crucial role in the percentage of the national unemployment.
A study by Jeffrey Clemens and Michael Wither evaluated the effect of minimum wage increases on low-skilled workers during the recent recession; it found that minimum wage increases between December 2006 and December 2012 “… reduced the national employment-population ratio by 0.7 percentage points.”
A spike in the minimum wage causes employers to release employees that do not have the adequate skills to maintain the job.
When analyzing economic policies, citizens are driven by emotions that prevent them from looking at the situation from an aggregate view. The broken window fallacy, a theory by Frederic Bastiat, does a superb job of providing an example: Citizens often view the immediate, short-term response without being aware of the long-term effect that can cause more harm to the most vulnerable individuals.
Economics is a social science that must be studied for what it is, not for what you wish it was.