Economics

How Raising the Minimum Wage Harms Businesses & Workers Alike

“Now, what property can the colonists be conceived to have, if their money may be granted away by others, without their consent?”  —Samuel Adams

Who Wins?

How is a business supposed maintain the ability to plan, when suddenly their expenditures might be raised by the whim and fiat of politicians?  Is it true that raising the price of labor, across the board, helps workers and businesses?

Small business owners provide about 60% of all the jobs in America.  And many of their businesses are struggling not to go under.  Will raising the price of labor help businesses to stay afloat?  And if it will not, then to what extent will this government interference actually be good for the employees of these businesses?

So Pretend You Have a Business

minimum wagePretend that you are a struggling small business owner, and that you can only afford to spend $80 an hour for labor.  Currently, you have 10 laborers working for your business.  What happens if the price for that labor is raised from $8.00 an hour to $10.00?  Now how many workers can you afford?  Sadly, you can now only afford to keep eight workers.

Eight workers get to keep their jobs, with a $2.00 raise, but on the backs of the two who have lost their jobs, due to government interference.  This is wealth redistribution from more workers to fewer workers!  It is as if Robin Hood stole everything from two workers, to make the other eight richer.

Some business owners might decide that they already are operating with a skeleton crew, and just cannot manage another increase in the cost of doing business.  Those business owners will likely face hard decisions: Where can I cut?  Can I lower the quality of my product and still retain my customers?  Do I open later and close earlier?  Or do I need to go out of business?

Price controls often have the effect, when set higher than market value, of making certain jobs simply go away, due to lack of demand for services that are now priced too high.  Lucky are the businesses that survive these wage increases.

Only the Free Market Guarantees Correct Pricing

Only the pricing signals sent back and forth between buyer and seller in a free market can set the prices of goods and services correctly.  Labor is a service, and when government intervenes by forcing the wage price higher, there will, necessarily, be fewer takers for buying labor.  Fewer business owners will be able to pay the new price.

The result will be an overabundance of labor, and not enough customers to purchase it.  Some economists estimate that a minimum wage hike to $10.10 an hour will mean 40,000 job losses in this economy.  And it might turn out to be even more than that, in light of more costs being placed upon businesses by the new healthcare law.

Price Controls Interfere with Learning

minwageterrorThe irony of all this is to be found in the fact that the minimum wage only applies to 2.3% of the work force.  Minimum-wage jobs used to apply to 6% or more of the jobs in the US, but each rise in the wage price has, in turn, decreased the percentage of jobs businesses offer at the higher wage mandates.  The minimum wage is an entrance level wage, and most minimum-wage jobs are held by teenagers and students who are dependents still being helped by parents, or older people who are retired and just looking to supplement their pensions or social security payments.

The minimum wage was never really meant to be a living wage, and continuing to raise it will only mean that an entire class of jobs—and the learning opportunities they bring—will eventually go extinct.  This would be a shame, since holding many of these jobs is akin to getting paid while you learn.  Many of these jobs offer the inexperienced an ongoing opportunity to audition for other jobs in the business over time that one might, otherwise, never be recruited for.

Unintended Consequences

It should be noted here that Taco Bell and McDonald’s have possessed the ability for quite some time to run their establishments with only two workers per restaurant.  Information systems can do most of the jobs, nowadays, from wrapping tortillas to flipping burgers.

At what point does government make it economical to replace low-skill workers with robotic smart-systems that can be managed by two people per work site?  The government needs to stay out of the lives of business owners, with all the unfunded mandates, price controls, and job-killing regulations they are wont to issue!

The Uncompassionate Government

With continued government interference in the job market, many businesses are likely to find it has now become economical to employ robotic smart-systems, rather than actual human beings, to get work done.  Seattle has recently raised its minimum wage to $15.00 an hour, and L.A. is now considering an increase to $13.00!  It will be interesting to see if robotic smart-systems will finally enter the workforce to some extent.

Eventually these jobs will be replaced, but only by jobs requiring more education, and for which it will require time to acquire training: robotics designers, information-system programmers, robotic repair mechanics, etc.  So, is the forced elimination of unskilled jobs really showing compassion for the poorest and least educated among us?  Or is the situation just the opposite?

Perhaps those of us who support more jobs and less regulation are not so heartless or uncompassionate after all!  Perhaps those who are truly lacking compassion are the ones who would cancel the opportunity for workers to learn while being paid and the ability of businesses to run more easily and successfully, generating wealth, paying taxes, and creating new tax-payers as they go.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by EagleRising.com


About the author

Paul Dowling

Paul Dowling

Paul Dowling is an American patriot whose mission in life is to educate and enlighten his fellow citizens about the correct principles for facilitating a life of freedom and a culture based upon the Golden Rule, as well as to do whatever is in his power to help protect his countrymen from their government.

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