The Problem with the Minimum Wage

economics

People who believe that a higher minimum wage will increase the quality of life of workers as a whole, are misinformed on simple economics.

Not all business owners are billionaires who can afford to lose some profits on additional employment costs, and even those billionaires most likely don’t want to do that either (that’s how they became billionaires). Any sort of small business will have a limited budget for employees, and the minimum wage severely constrains the way they can operate as a business.

For the sake of an example, we’ll continue to be in a world that even has ANY minimum wage whatsoever: Let’s say a small business has the budget to afford paying $150/hour in wages in total for all its employees. Let’s say the minimum wage is $10/hour currently in their location, that means that they can afford fifteen employees based on their budget. Now let’s say that the lawmakers in that state decide that people working at McDonald’s deserve a “living wage” of $15/hour. That means that the small business can no longer afford the same workforce that it was employing, and that five people will have to be let go. So, minimum wage increases may seem like a good thing for those remaining ten employees who were able to keep their jobs, but for the five that were laid off it’s not such a good thing.

Eventually, as people decide to gradually raise the minimum wage over and over again, the cost of employing people will become so high that investment in automation will take place to replace human labor. We can already see that in McDonald’s and Burger Kings all across the country, where your order is placed on a tablet instead of being told to a cashier behind the register. So in this case, even if the minimum wage was lowered back down it would be unlikely that the unskilled jobs would return; it has been raised so high that it is causing irreversible damage to the job market.

The existence of a minimum wage in any way shape or form is a different story regarding the peoples’ right to choose who they work for and freely contract with them.

The existence of a minimum wage is a hindrance to the modern worker. The minimum wage restricts the amount of employees a small business (or big business for that matter) can afford, therefore limits the number of jobs available to the labor market, and the rights of workers to negotiate a contract with a potential employer that suits both of their needs.

Let’s say an unemployed laborer comes to McDonald’s, who ordinarily pays its employees $10/hour and the worker offers to do the same job for $7/hour. Why is government saying that this is unacceptable, when the worker themselves are deciding to create competition in the labor market by offering their services for a lower cost? This scenario would be a good thing for McDonald’s, the unemployed laborer, and society as a whole. McDonald’s would be able to save money on that particular employee and therefore build it’s business off of its savings; the unemployed laborer would be able to gain employment at a rate of pay they deemed reasonable, and then both parties would be able to put their new earnings back into the economy through purchasing goods. But no, this scenario is unacceptable because people with no economic knowledge in Washington D.C. have decided that everyone MUST be paid X amount of money for their unskilled labor.

Not only does the existence of the minimum wage limit the rights of employers, and employees to contract their labor in a way they see fit, but it also makes skilled jobs less worth while. If you were presented a choice between a job that pays $15/hour working at McDonald’s with no higher education, or a job in IT support that requires X, Y & Z certifications as well as a minimum of an Associate’s Degree, but only pays $20/hour, it would not be terribly surprising if someone deemed in the short term to that the McDonald’s job was more worth while. The initial investment to be qualified for an entry level skilled job with an actual career path is significantly higher than that of an unskilled job like the food service, and therefore the skilled worker should be compensated more than the unskilled worker. The next thing someone in support of the minimum wage might say is “Well, then employers should start paying the skilled workers even more!” This clearly wouldn’t make any sense for the same reason that raising an already existing minimum wage wouldn’t work on the large scale; many employers can’t afford increasing staffing costs.

This all means that as a minimum wage keeps being increased (because we all know that the $15/hour minimum wage would eventually be raised again), skilled labor becomes less and less worth while. If people started choosing to flip burgers at McDonald’s their whole adult life (or remain in similar unskilled jobs) instead of becoming certified/qualified for some sort of skilled labor, the nation would suffer as a whole. A shortage of skilled labor would occur, and then the economy would lack some of the professionals it needs to function. The effects of this can be seen in the teen unemployment rate. Up until very recently, it was high school kids that you would see bagging groceries, stocking shelves, behind the register, etc. but now you will see adults doing jobs that are meant for kids. These types of jobs are meant to be stepping stones to allow you to afford bettering yourself through higher education or technical training so that you can build a career in a professional environment.

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