The Problem With The Minimum Wage

Howard Dean has come out in favor of raising the minimum wage,

“If elected, (Dean) promised to raise the national minimum wage to $7 per hour, up from $5.15.

“Our philosophy is give the working people a little more money and they might be able to go down and spend something on Main Street,” he told the audience of labor and African American activists here in Detroit.”

In reality, raising the minimum wage is just as likely to put those working people Dean is talking about out of a job as it is to give them a “little more money” to spend down on Main Street.

Why is that you ask?

Well, you have to consider that there is no such thing as a free lunch. A business that pays its workers minimum wage is going to have to make changes to deal with extra costs that are being imposed on them by the government.

On the one hand, the business may decide to pass those costs on to their customers and raise prices.

However, competition may mean that raising prices isn’t possible. So what can the business do then? Depending on the field and position involved, there are a lot of different options companies have…

— They may simply end up going out of business because they can’t compete.

— It’s also possible that the business may decide to fire the employee and not hire a replacement if the position isn’t essential.

— The business may replace the worker with a piece of machinery or software that now looks more attractive because of the higher labor costs.

— Moving their operations overseas where labor costs are cheaper may become an option.

— Two low skilled workers making the minimum wage may be replaced by a higher paid worker with more skills.

We could go on and on with different possibilities, but the important thing to remember is that because minimum wage laws make labor more expensive than what an employer would be otherwise willing to pay, jobs that are usually filled by the youngest, least skilled, & least educated among us are lost as a result.

In truth, we’d be better off completely abolishing the minimum wage because that would help more of our least employable citizens get into the work force where they could make some money while gaining skills & experience that could allow them to get better jobs down the line.

So getting rid of the minimum wage, not increasing it, is the way we should be going.

***Update #1***: In the comments section, RanDomino wrote in part,

“Hey, good points all, but you know what happens when there’s no minimum wage? That’s right! No wage at all! Okay, maybe not _no_ wage (because then no one would work), but not enough to be happy with. Could you survive on $1 per hour? didn’t think so.”

This is a common misperception that many people have about the minimum wage. They believe that if the minimum wage wasn’t there, many businesses would slash the wages they pay out down the bone.

Now certainly, companies that are already paying the minimum wage to workers might try to cut those salaries since they’re only paying the amount they’re being forced by law to pay anyway. But, a company that’s paying out $10 an hour today, wouldn’t slash salaries down to $1 an hour if the minimum wage law were removed.

Now why is that?

Well, let’s say that every company in America started paying their employees $1 an hour starting tomorrow. How many people would turn up late every day and leave early, take 3 hour lunches, and just skip work 2 or 3 days a week? Heck, how many people would show up at all?

Then think about what would happen if, let’s call them ABC company, got sick and tired of the poor performance of their workers and decided to pay their workers $3 a hour instead of a $1. Well, all the best workers would then go to ABC company. So in order to compete, other companies in their field would raise their salaries to $3 an hour, or better yet $3.25 in order to get even BETTER employees than ABC company.

Eventually, salaries & benefits would come right back up to their current rates because companies need to have the most productive employees they can afford to help them remain competitive in their industry. That’s why 97% of American workers made more than the minimum wage in 2002. Removing the minimum wage would have a very minimal impact, perhaps so small that it would be unnoticeable, on the salaries of those people already making more than $5.15 an hour.

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