Raising the Minimum Wage: Why We Shouldn’t Let Faulty Logic Rule Our Paycheck

By Niles Wimber

I think it’s safe to say that the subject of the minimum wage can be a pretty emotionally and politically charged subject. No one wants to be seen as putting the poor to the grindstone of low wages. However, I will say that because of all these emotions and opinions, some plain and simple principles are getting left out of the conversation. Let’s bring those back to the table and look at how the minimum wage is the most harmful to the very people it would ostensibly help.

Because we can still expect cheap Big Macs if McDonald’s raises wages more than all minimum wage hikes since 1938 combined, right? Image Source: foxnews.com

First of all, the minimum wage is essentially the price of labor. Setting a minimum wage is like setting a price floor, which means that selling anything below the fixed price is illegal. Accordingly, if the minimum wage is $10.10, that means it is illegal to pay anyone less than $404 for a 40 hour week. However, you can’t make someone worth an arbitrary amount by making it illegal to pay them less than that. Once this law comes in to effect, every business will no longer employ anyone who is worth less than $404 a week. For every higher-up employee who is better off by an “improved market”, there’s another employee who was laid off or never hired. Essentially, you are substituting low wages for unemployment.

Now, some people could say “well, why doesn’t (hypothetical example) McDonald’s just raise their prices to cover the loss?” Sure, they could do that until Burger King decides to fire two people and keep their prices the same and steal McDonald’s business. To the Average Joe, you have no idea that Burger King did that; all you see is they have burgers for, say, $1.50 cheaper than McDonald’s.

Those same people would reply, “If McDonald’s can only exist by screwing its workers, then perhaps it’s for the best that Burger King drove them out of business .” That’s a bold statement that overlooks the reality of the situation. One, you now no longer have the unique products McDonald’s provided; Big Macs, McGriddles and McRibs are gone for good. Two, everyone who worked for McDonald’s is now unemployed. Three, even though McDonald’s wages were supposedly bad, they were pretty good compared to other options that the people who worked there had; if that wasn’t the case, then those people would be working somewhere else already. Now, they have to compete for jobs at the other, less good options which will only drive down the wages there, except, wait… they can’t do that because we have a minimum wage law. So… I guess they’re gonna stay unemployed now.

Now, we have unemployment relief programs that are supposed to help out in a situation like this. Let’s say we pay people 75% of the minimum wage, so $303. Seems solid, right? That’s great, except for the fact that now everybody is working for the difference between that and the minimum wage. If I can get $303 for sitting around and putting in enough job applications to stay qualified, then I’m being asked to work for only $2.53 an hour; the rest I could get for essentially nothing. In fact, at the old minimum wage of $7.25 an hour, I’m only making $290 a week. If the government isn’t careful with the math, your unemployment benefits are now more than actually working under the old system.

My argument here isn’t that it’s impossible to raise wages. It’s just to point out that the “easy” method of having the government force everybody to pay more is the worst way to go about it.

UPDATE: Here’s an article from Forbes saying that it’s really hard to exactly know what the effects of a minimum wage hike will be, but that the obvious solution for places like McDonald’s would be to automate the process more and then lay people off.

Advertisements

One response to “Raising the Minimum Wage: Why We Shouldn’t Let Faulty Logic Rule Our Paycheck

  1. I believe that Niles has accurately described the short term problems regarding the minimum wage, but there are some long term consequences as well.
    Long term, we end up with higher wages and higher prices for everyone. Automation will have replaced some portion of those who were originally laid off or not hired and some new jobs will likely have been created in the industries that manufacture the automation equipment.
    Here is how the process has historically worked. To continue with the fast food restaurant example, suppose that some person who had been hired at the current minimum wage has now earned pay increases equaling the proposed increase to $10.10 per hour and suppose that person’s shift manager is earning, say, $15.00 per hour while the store manager is earning perhaps $20.00 per hour.
    After the minimum wage is increased for the new hire, the more experienced person will expect to receive the accustomed wage differential and so will that person’s shift manager and store manager. In time, they will all get a pay increase and prices will be raised to compensate.
    The same process will take place, not just at competing restaurants, but throughout the economy. In time, workers at all levels will have received pay increases, prices nearly everywhere will have been increased and many previously laid off workers will be rehired. Some jobs will have been created in those industries manufacturing the automation equipment that has replaced the previously laid off workers.
    With tax laws remaining unchanged, government will then be collecting more revenue from the increased wages of millions of workers and can pay off debt with devalued currency. (Pop quiz question: What do you suppose is the real reason that many government officials support raising the minimum wage?)
    Since we will be basically back where we began, the clamor will again be that since no one can raise a family on $10.10 per hour the minimum wage should be increased.
    That is how the process has taken place since the the late 1930’s when the original minimum wage was put in place in the United States at twenty five cents per hour and when hamburgers cost ten cents. I expect the process to remain the same with the newly proposed wage hike. Wash, rinse, repeat.

    Liked by 1 person

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s