8 Little-Known Reasons the Politicians are Dead Wrong: How the Minimum Wage is Hurting the Poor, the Middle Class and Job Creators

Craig Huey Economics Leave a Comment

The politicians … the media … Facebook …

It’s a constant, loud cry to raise the minimum wage…

They claim it’s necessary to help the poor and to prevent poverty.

But there are 8 little-known reasons why they are dead wrong.

Raising the minimum wage is the worst possible thing you can do for the poor … and for everyone.

Why?

Because economic actions always have both intended and unintended economic consequences…

Sometimes the unintended consequences are far more destructive than the intended consequences are beneficial…

As a business owner and a student of economics, I can tell you that most people don’t see the unintended consequences.

Here are 8 unintended consequences of the minimum wage hikes that are hurting the poor … the middle class … and small businesses:

  1. Jobs are lost and/or hours are reduced.

When wages are increased arbitrarily … without a corresponding increase in productivity … or increase in the value of the service performed … some employees will be let go because they will be too expensive to keep on the payroll.

A raise in the minimum wage never creates new jobs … it always reduces employment…

And for those minimum-wage workers who get to keep their jobs, their hours are often cut…

Example: After Seattle raised its minimum wage from $11 to $13 per hour, a study by University of Washington researchers found that hours – and also wages – for low-skill workers decreased by 9% from what they were before the minimum wage increase.

This phenomenon isn’t limited just to Seattle…

One of my subscribers commented that when she recently checked out at a local market, the young store clerk lamented that his hours had been reduced and that his income had gone down since the increase in the minimum wage.

A higher minimum wage doesn’t benefit the low-skill workers it is intended to help.

The ones hurt the most are those starting out – without job skills or specific job training and education.

  1. Wage increases are reduced or eliminated.

In a free market economy, wage increases are based on increased productivity, increased skills or knowledge … or some other increase in value of the employee to the employer.

If wages are driven higher by law – not by an increase in value to one’s employer – further wage increases above the minimum mandated will be few and far between…

Minimum-wage employees will be considered by their employers to be overpaid.

A raise in the minimum wage reduces future pay increases.

  1. Increasing labor cost results in higher prices.

If a company wants to remain in business, it must continue to earn a reasonable profit even when the cost of overhead increases.

If a company chooses not to lay off workers – or because of the work performed cannot lay off workers – it has no choice other than to raise prices.

That’s why you see so many businesses raising prices today.

  1. Higher prices affect small businesses more than large corporations.

An increase in the minimum wage changes the spending habits of many Americans … hurting small businesses.

How?

Consider small, rural, family-owned coffee shops…

They must immediately raise prices to pay their baristas the higher minimum wage.

As a result, customers leave those coffee shops and start going to Starbucks or Coffee Bean – which are much less affected by the increase in overhead … and can maintain their prices – for several months perhaps – before increasing them.

Here’s another example: A church in California has estimated that this year’s increase in the state’s minimum wage will cost them approximately $20,000 in increased wages.

But they have also been informed that the teachers in their K-8 Christian school will be required to have mandatory salary increases to achieve more “parity with government school teachers of equivalent qualifications and job description.”

This could result in parents pulling their children out of the school because of the need to raise tuition to pay the higher teacher salaries.

Increasing the minimum wage benefits large corporations and hurts small businesses.

  1. Automation becomes cheaper than paying workers.

McDonalds and other restaurants – as well as retail outlets – are experimenting with automated ordering and payment systems.

Grocery stores and other retail businesses already have automated self-pay checkout systems.

With the minimum wage ratcheting higher in steady increments, it’s only a matter of time until all human cashiers are eliminated from the retail sector.

A minimum wage hike increases the acceleration of automation – causing more jobs to be lost.

  1. On-the-job training programs and start-up jobs are eliminated.

In a free-market, low-minimum-wage or no-minimum-wage economy, it benefits companies to create start-up jobs and on-the-job training programs.

By doing so, companies can train inexperienced workers in specific job skills … and in the unique culture of the company…

And they can afford the investment because they are able to pay a low wage during the job training period … while the productivity of the new hire is minimal to non-existent.

In a high minimum-wage economy, most companies simply can’t afford to pay high wages to both new hires and trainees – neither of which are contributing to the company’s bottom-line profits.

  1. Opportunities for marginal workers are eliminated.

Marginal workers are people who – because of either physical or mental challenges … or a combination of both – have limited job skills … and lower productivity than those with no limitations.

These workers have more opportunities and a much higher chance of being offered a job in a low-minimum-wage job market.

When the minimum wage is forced higher by law, companies can no longer justify the expense of hiring marginal workers.

  1. Upward mobility is stunted.

All of the unintended consequences of a high minimum wage combine together to produce a stagnant economy with fewer opportunities for cross-training and for job transfers.

Fewer opportunities for cross-training and for job transfers mean less upward mobility.

Employees are much more likely to become “locked in” to their initial job – and remain in it – for fear of not being able to find a new job were they to move … or were they to seek to capitalize on their work experience by quitting their current job and looking for a higher-paying job with another company.

 

What do you think? Write me at [email protected]

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