The Minimum Wage

A recent visitor to my blog, who posted under the name, Carvin, shared some sharp opinions about his view of corporations, the wealthy, and the minimum wage. Here's a sample of what Carvin said:

Many of our biggest corporations pay little to no taxes due to their corporate welfare. This money does not go to anyone who works, but the richest people in the company that merely own it, often through nepotism. Meanwhile, they pay their employees so little that they will either starve and/or fall ill because of it. Since the rich control almost all areas of occupation, they can agree that no one should be payed enough, and do. Our minimum wage is criminally low, a point of utter shame. Our healthcare system is set up so only the rich can be healthy.

Carvin is certainly passionate, but his points lack any substance. He paints a picture where America resembles the caste system of medieval Europe. The world he describes is completely foreign to the real world that I live and work in every day. I'm sure most would agree. Where you work, do you see emaciated people chained to their desks? Are there wooden carts being pulled through your neighborhood with a crier ringing a bell saying, “bring out your dead”? How can Carvin say that workers “starve” or “fall ill” and “only the rich can be healthy”? I'm certainly not rich and neither am I ill or starving. This plague on workers he describes exists only in his imagination.

There are a lot of points I could address, but in this post, I'm going to specifically address the minimum wage issue he raised. Considering, too, that an increase in the minimum wage was just defeated in Congress, the topic is rather timely.

I've always wondered how a minimum wage ever became acceptable in the first place. OK, I do see how. It's an example of that old adage that when you rob Peter to pay Paul, you can count on the support of Paul. Some people don't mind when others are being robbed of their property if they know they will be the beneficiaries of it. I see no justice in it at all. On what grounds does the government have the right to set the wage an employer can pay his employee? It seems to me that it should be up to the employer and worker (as in Matthew 20). The employer decides how much a particular task is worth and offers someone that much or less to do it. The worker then decides if the job is worth the pay and might decide to accept. The sounds like the epitome of fairness. What sounds unfair is to demand an employer paid $10 per hour for a job that is only worth $7.

Now, some people might say, “But $7 per hour is not enough to live on.” Well, maybe it's not – but that still doesn't justify paying someone $10 to produce $7 worth of work! This is supposed to be a business, not a charity. Liberals seem to think that the purpose of a business is to provide jobs, promote diversity, and create social equality. I hate to break the news to them but the purpose of a business is to produce goods/services for a profit. Creating jobs is a fortunate consequence of the business's pursuit of profit. Companies that cannot produce a profit eventually go out of business and then there will be not only be no goods and services produced, there will be no jobs either.

Most jobs that pay minimum wage do not require much skill or education. These are often high turn-over jobs (such as in the fast food industry) or temporary, seasonal jobs (like department stores). Many are filled by teenagers or adults who only work part-time. It's also an introductory wage. People who stay with the same employer for any length of time begin receiving raises and/or promotions. According to the US Census Bureau, the average income for an individual in the US is $28,051 – well above the minimum wage. So an increase in the minimum wage won't do anything to help the overwhelming majority of people who work. It will only mean employers will have to pay more for teenagers to flip hamburgers during the summer.

Beyond that, though, increasing the minimum wage will actually hurt many of the people it's intended to help. Let me give you an example that everyone can understand: If you eat at a fast food place that only charges $1 for a burger, but then they suddenly raise their price to $2 for a burger, do you think you'll buy more burgers or fewer burgers in the future? It's obvious that you would probably buy fewer burgers. Most people would. Now, suppose it currently costs an employer $15K to higher a worker but suddenly it costs $20K. Do you think that employer will higher more people or fewer people? Labor is an expense to a business just like food is an expense to an individual. Labor is an expense just like rent or utilities is an expense. People try to save on expenses. You do it and businesses do it. And if labor costs more, businesses will try to reduce their labor costs somehow. It might mean they higher fewer people. The end result is that there will be less jobs available for low skilled workers.  So instead of making more money, many low skilled workers will simply be out of work.

A higher minimum wager also means employers might replace labor with technology.  Think about that for a minute. If a labor saving machine is very expensive, I might continue using cheap labor indefinitely. For example, I might pay a crew $7.25/hr to dig with shovels but if I had to pay them $15/hr, then I might choose to replace the crew with an excavator. Then I only have to pay one man $15/hr to work the machine and the rest are out of work. Once again, a higher costs of labor has cost jobs.

We should also consider the consequence to everyone else if the minimum wage is increased. Suppose a business has 50 employees and its annual labor cost is $1 million. Some of the workers make minimum wage and some make more. If the business suddenly had to pay higher wages to the lowest wage earners, it doesn't magically have more than $1 million to pay. Some workers could be laid off but what else will happen is that the workers who are making more than the minimum wage already will likely get smaller raises or no raises on their incomes. So a raise on the minimum wage actually suppresses the wages of everyone.

Finally, when forced to pay a higher amount for labor, many businesses will be forced to raise the prices on the goods and services they produce. This affects everyone since the value of a dollar is eroded by higher prices on everything. Inflation usually hits poor people the hardest. Do you think McDonald's will still sell burgers for $1 if they have to pay its part-time, teenage workers $15 per hour to cook them? Who eats at McDonald's? Only rich people?

So let's sum up. Increasing the minimum wage will:

• give employers an incentive to cut their labor costs
• cause employers to higher fewer people
• cause some businesses to replace workers with machines
• suppress the wages of everyone
• raise the prices on everything

Did I miss anything? Some people would cut off their nose to spite their face. Raising the minimum wage doesn't mean more prosperity for the poor. It would mean fewer jobs and higher prices. More poor people will be out of work and it will be harder for them to buy food, clothes, and housing. Oh, and by the way, the rich will still be rich.