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.
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.