Many that are running or planning to run on the left side of the aisle have made the minimum wage issue a prime concern of their campaigns. This does make sense as 58% of Americans according to a Pew Research Center poll support raising the federal minimum wage to $15 an hour. While those that support an increase may have the best intentions, good intentions don’t make good economic policy. In fact, raising the minimum wage has disastrous effects on the economy and hurts those that it aims to help.
The hardest job of any employer is to find good employees and to keep them. How do they keep these valuable workers? This can be done through benefits such as higher pay, healthcare, vacation days and so on. When employers have to compete with other employers for labor, the workers benefits increase. In fact, a 2013 Congressional Budget Study found that just raising the minimum wage to $10 would cost the nation 500,000 jobs. Even a slight rise in the minimum wage by just $1 could result in a 4-10% increase in the likelihood that a business will close according to the Harvard Business School. With the current minimum wage at $7.25 and the new call to raise it to $15, that's an $8 increase which will result in a 32-80% likelihood that a business will close. On top of this, new entrepreneurs will see these high costs and simply not try to open new businesses. This means that already established companies will go under, causing job loss, and new companies won’t take their places, keeping those jobs lost. Even the lucky few who do get to keep their jobs will see their hours cut as employers try and stay afloat. In fact in 2013 Seattle raised their minimum wage to $13 an hour and the average worker lost $125, a rather large pay reduction for those struggling to make ends meet, and anyone who’s had a job will know that there's always that ping of jealousy upon finding out a coworker makes more then they do. So in order to keep their more senior or specialized employees happy, businesses will have to give them a raise as the minimum wage would now make the most basic dishwasher’s pay the same as the more advanced, and perhaps older, fry cook. This would further strain the profit margins of businesses and in order to reduce costs, employers will be less likely to hire teenagers who are looking for their first job as that unskilled teenager is just that, unskilled, meaning that a business will have to pay more for unskilled labor when they could pay the same price for a more skilled laborer. In order to have the dream job you need to have the first one. With new businesses no longer starting up and employers having to fire workers to keep costs down, this creates a California situation, meaning that in places like California (with a high minimum wage) we have employees competing for jobs which usually means they’ll take whatever comes their way, no matter the benefits offered (or lack thereof). This would mean that businesses no longer have an incentive to offer better benefits for their workers as there is a lack of jobs so people will take what they can get. In economic terms, this is a lack of supply (jobs) with a high demand (people wanting jobs) causing a shortage and an inelastic situation. However let's say the minimum wage (both state and federal) are abolished, wouldn’t that just mean employers will take advantage of their employees? The answer is they’ll try to but we forget that we live in a free market society meaning that I don’t have to stay at a job that only offers me $5 an hour. Instead, I am free to go next door to the place that is offering $10 or the place across the street that’s offering $12 an hour and healthcare. The point is, businesses will have to compete amongst themselves for workers. No matter how greedy the employer, they still need workers and the only way to get them is with good pay, minimum wage just hurts both the employer and employee. -Jared Zimmerman
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Looking at the comedy that is government intervention in the market.ArchivesCategories |