The unemployment rate has been over 8 percent every month for over 3 years, it is difficult for many young people to find work and statistics show that the labor force has actually shrunk as people have given up hope of ever finding a job.
So what is being proposed by some editorialists and legislators? Let’s solve our economic problems by making a job more expensive for the companies that provide jobs!
That is exactly what will happen if some members of Congress and others who are calling for an increase in the federally-mandated minimum wage get their way. There is a belief among them that employers should have to pay more for labor and that individuals should not have the ability to negotiate a wage with the employer if the skills they have to offer the employer are worth less than the minimum wage.
Calls to raise the federal minimum wage fly in the face of the economic reality our country currently faces. In a slow job market made worse by a weak recovery and uncertainty about the government’s ability to resolve the debt issue, the desire to make it more expensive to hire workers and expecting that to grow the economy is like trying to grow strawberries in the Sahara.
Despite this, the idea is popular with some lawmakers. Some supporters think it should be increased to $9.80 an hour by 2014. Sen. Tom Harkin, D-Iowa, chairman of the labor committee, favors making the minimum wage $9.80 by 2014. Even Republican Presidential candidate Mitt Romney thinks the minimum wage should be adjusted to keep up with inflation.
This is not to say that the minimum wage at its current level is making anyone independently wealthy. Under the federally mandated minimum wage of $7.25 an hour, a fulltime worker earns just $15,080 a year. The federal poverty level for a two-person family is $15,130, or about $50 more than a full time worker making minimum wage takes home in a year.
The hard truth, though, is that not all workers are worth $7.25 an hour; let alone $9.80, to an employer. When the government tells an employer that they have to pay someone who produces $7.25 an hour of productivity $9.80 then that employer will choose to pay their employee the real minimum wage: zero.
That right there is just one example of how a higher minimum wage destroys jobs in this country. Another way that it does that is by making labor costs even higher, which makes some businesses that were making money lose it and go out of business. It also keeps people from starting new businesses because they cannot afford the wages of their new hires. The dirty little secret of minimum wage laws is that those who are hurt by them never realize it, because they could not get a job due to the costs to the employer.
One of the rules of economics is that when the government mandates a minimum wage it has the effect of pricing unskilled, particularly young, workers out of the labor market. This kills their ability to acquire the skills and experience needed to find better, and higher paying, jobs later on in life.
According to a National Center for Policy Analysis study, raising the minimum wage by 10 percent reduces the employment of young workers by 1 to 2 percent. That means that thanks to the nearly 40 percent increase in the minimum wage between 2007-09 the government has inadvertently increase youth unemployment by as much as 8 percent. Is it any coincidence that the young now face the most difficult job market in several generations?
If raising the minimum wage another couple bucks to $9.80 is such a good idea, and would not have a negative impact on hiring, then why not raise it more? How about to $20 an hour, or $100, or whatever amount just sounds right to make people feel better?
Sure, it sounds like raising the minimum wage would boost the economy by putting more money in people’s pockets, but that just is not how it works. To offset the rise in labor prices, the business would have to either lay more workers off to stay profitable or pass the cost on to the consumer. Nothing would change the actual real dollar amounts available to purchase with.
Another reality is that less than 20 percent of minimum wage workers are from low income families that would benefit from the raise in the minimum wage. The rest are mostly teenagers from middle-class families. So the government would be increasing the burden on businesses with little to no benefit to the workers who actually need it the most.
The best solution would be to do away with the federally-mandated minimum wage and allow workers to negotiate their own wages with employers. This would allow workers to get jobs they otherwise would not be able to and give them the knowledge and experience in that line of work to move on to better paying jobs within their field because another truth of economics is that businesses will pay top dollar for employees who demonstrate they are worth it.
Those who want to increase the minimum wage have good intentions, but they ignore the results of their intentions. Intentions ultimately are irrelevant to the effects of the act. Somebody can push me into the path of an oncoming bus, or I can trip, the truth, though, is that it does not make any difference why I went off the sidewalk, because the end result is the same. Raising the minimum wage only puts the economy in front of that exact same bus.