The Minimum Wage is going to be a hot-button issue during the elections this fall. I blogged about it over a year ago, but since it’s becoming an issue (radio ads by the Democratic Party started this week and focus on this issue), I feel like it’s worth another look.
The Federal Minimum Wage is currently $5.15/hour and has been that since 1 September 1997. Eighteen states have passed laws setting their own minimum wage higher than that; the rest are the same or lower (so the higher federal rate applies). The purpose of the Minimum Wage law is nominally to guarantee a “liveable wage” for the American workforce. Of course, the law as written does not state the purpose of the law, only what the requirements are. The purpose is something argued about by Congress.
The U.S. Department of Labor says:
The minimum wage law (the FLSA) applies to employees of enterprises that do at least $500,000 in business a year. It also applies to employees of smaller firms if the employees are engaged in interstate commerce or in the production of goods for commerce, such as employees who work in transportation or communications or who regularly use the mails or telephones for interstate communications. It also applies to employees of federal, state or local government agencies, hospitals and schools, and it generally applies to domestic workers.
In other words, it applies to almost all businesses in the U.S. Even tiny little “mom-and-pop” places use the mails or telephones for interstate communications, if only to communicate with their suppliers.
But does the Minimum Wage law accomplish its purpose? My answer is “No.”
First let’s look at the business process when the minimum wage is increased. We’ll use a hypothetical burger joint for an example. Businesses are required to pay more for their “low-end” workers. This won’t affect management because they make quite a bit more. It more typically involves high school and college students and the poorer people of society. So the basic workers coming in to flip burgers have to get paid more. This produces a higher cost for the employer, obviously, because they’re spending more money on employees. This causes profits to be reduced. For every burger sold, the company makes less money. If they were already struggling financially, this could kill them. No exaggeration.
This also means that the suppliers of beef, hamburger buns, paper goods, cleaning supplies, etc., are ALSO making less of a profit, thus increasing the costs for the mom-and-pop place even more.
If profits are to be kept where they are, then, there has to be either a decrease in costs elsewhere in the company or else an increase in sales. Often, this means hiring fewer low-end (lower-productivity) workers. This has been documented here and elsewhere. If fewer poor people are hired, how is this helping society? It’s a guarantee for higher unemployment. Many of these people would be willing to work for LESS than minimum wage if they could have a place near where they live and not have to take a bus to get there. Instead, more of them are out of work.
The other way to offset the cost of an increased minimum wage is to increase sales. Most profit-driven companies are in a continual process of trying to increase sales so they can make money. That’s their business. So if that’s not really an option, the only other thing is to increase the price of their products. Mom-and-pop’s hamburgers go from $1.99 a burger to $2.25 a burger.
Figure that this process is going on in ALL businesses that have minimum-wage workers. The end result is that costs for EVERYTHING go up. So we’ve increased the pay of the low-end workers and then raised the prices of the entire retail market. That results in NO CHANGE for the minimum-wage workers and LOWER PURCHASING POWER for everyone else, since they’re not getting raises to balance the low-end pay rates.
How is this a good idea?
This is an area that should NOT be regulated by the government. Let the markets drive the wages. Businesses that hire many low-end workers will hire more people and will experience decreased costs, allowing them more retail flexibility for competing with their rivals. Sure there will be some that will try to exploit their workers, but that happens anyway. The market will eventually even it out and allow more people to be hired, help reduce unemployment, and increase the power of the dollar. For many poor or out-of-work people, $4.25 an hour would still be tons better than $0.00 an hour.
So if you get a choice this November to voice your opinions on the Minimum Wage, just say NO! It’s a foolish idea that offers a pretense of helping people while in reality it hurts both businesses and employees.
Direct, by Vangelis
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