Abolishing the Minimum Wage: Helping Small Business, the Consumer, and Unskilled Labor.
What good does increasing the minimum wage bring to American business and consumers? It sounds like a great idea doesn’t it? We should increase the minimum wage, this way the standard of living “increases”. People will have more money to spend, thus increasing demand and helping business. It also “helps” the poor cope with the cost of living, while it also provides more incentive to look for a job. But in the real world, increasing the minimum wage does not increase the standard of living, nor does it help business and the worker.
The end result of increasing the minimum wage rate has several unintended consequences. The first being higher prices for goods and services. The second consequence is quite ironic. With a higher minimum wage rate, the cost of employment is higher. This leads to several having a job, with a “good” income, and several with no job at all. Since this hurts small business, which employs more than 50% of the American employed population¹, it’s easy to see how a higher rate can cause unemployment to rise. Sadly, this is the truth. The standard of living does not increase, as prices increase and unemployment increases. The resulting price increases can even hurt business production/profits. And we should all know that when prices are higher, people have less money in their wallets when they good shopping. This leads to less overall demand in the economy (unless wages increase in relation to the increases in prices.) In real life, when the minimum wage is increased, the standard of living actually decreases.
In 2008, the minimum wage rate was increased from $5.85 to $6.55 an hour². So who are the people commonly on the minimum wage salary? Unskilled workers like teenagers (16 to 19 years of age.). From 2007 to 2008, the unemployment rate for those 16 to 19 years of age increased from 16.3% to 20.7%³. That is a 4.4% increase in teenage unemployment. At the same time, unskilled workers like those without a high school degree also had an increase in unemployment. So with this recent evidence, why should we increase the minimum wage, if the result isn’t all that great?
People who advocate the increase of the minimum wage rate are typically those who think life should be “fair” to those poor, unskilled workers. Most of which are just teenagers and people who flunked high school. So why do unskilled workers deserve to make more than $5 an hour? We were fine under President Clinton, when the rate was at $4 an hour (1996 dollars); why increase the rate more? Let’s explore this subject some more.
Some say that businesses will take advantage of the poor, unskilled workers. They say “Without a minimum wage rate, the cost of living would thrust many into poverty.” Let’s dig deeper into the subject at hand. If businesses offered a minimum wage rate of $1 an hour to clean the floor, do you think people would look for a job like that? Why do you think businesses offer benefits? Why do businesses ask what type of salary you want? It’s simple; businesses compete for workers. Businesses need workers and if workers don’t get a certain salary, they won’t work efficiently nor will they choose to work for that business – there would be no real incentive to work hard. At the same time, people would flock to the business which offers more. This can be seen today, especially in Florida, where everyone wants to work for Publix. Publix pays above the minimum wage rate and it offers great benefits. This is why workers flock to that company. Publix never has a problem hiring new, qualified workers.
BUT, we also need to take a look at the type of job the unskilled worker is applying for. Let’s compare a doctor to a fry flipping, teenager. How much skill does it take to flip a French fry? Not much, therefore the supply of the unskilled worker is high. What about demand? How many businesses need fry flippers? Many do, but since the skill level needed for the job is so low the supply actually surpasses the demand, keeping the income rate of the fry flipper low. Now the doctor is always needed. Therefore there is a high demand for the doctor, but the supply is much lower than the demand. The supply is lower because the doctor has years of training – training most people don’t have. Therefore the doctor is hard to find. That is why a doctor will always receive a higher payroll than the unskilled, fry flipper. What is my point? If the free market can insure the doctor gets the payroll he deserves, what makes you think the free market won’t do the same with the unskilled worker? What makes you think businesses will exploit the worker, if the worker can easily start or join a union – or just leave? My point is that the supply and demand market equilibrium always delivers the right value for any good or service. Simply saying, the minimum wage being abolished won’t hurt anyone!
Even the U.S. Congress’s Joint Economic Committee agrees that the minimum wage does nothing to help our economy⁴. The Free Market should determine the wage/income rate of any job – not the government. Let’s get rid of the Minimum Wage – since it has the same results of the failed Carter and Nixon Price Caps and Price Controls.
Sources:
1. “How important are small businesses to the U.S. economy?” U.S. Small Business
Administration . N.p., n.d. Web. 6 Feb. 2011. http://www.sba.gov/advocacy/7495/8420
2. “Federal Minimum Wage Rates, 1955–2009.” Info Please. N.p., n.d. Web. 6 Feb.
2011. http://www.infoplease.com/ipa/A0774473.html
3. “U.S. labor market in 2008: economy in recession.” Bureau of Labor Statistics .
N.p., n.d. Web. 6 Feb. 2011.http://www.bls.gov/opub/mlr/2009/03/art1full.pdf
4. “50 Years of Research on the Minimum Wage.” Joint Economic Committee US
Congress. N.p., n.d. Web. 6 Feb. 2011. http://www.house.gov/jec/cost-gov/regs/minimum/50years.htm
