In the past couple of years, a number of politicians have pushed hard for a minimum wage increase. Notable supporters include Elizabeth Warren and Bernie Sanders. Just this week, Connecticut agreed to incrementally up its minimum to $15 an hour in the next four years. Advocates of the idea claim that it will improve the quality of life for many, especially the working poor. However, they miss the fact (or don’t care) that their plan would functionally cut wages for millions of working-class Americans.
By Jack Parkos | United States
Recently, a couple states have been not only playing with the idea of a minimum wage, but trying to pass bills on it. However, this is a bad idea. Not only is raising the minimum wage going to hurt the economy, but any minimum wage is detrimental. It hurts workers, business owners, and consumers.
The concept of a minimum wage implies that the government owns a business and its money. To believers in minimum wage laws, I have a simple question to ask. What gives the government the right to decide wages? The answer is, simply, there is none. A business is the property of the owner, not the government. The economy, not the government, is ultimately responsible for deciding wages.
This brings me to my next point. Many economists agree, a minimum wage is bad, let alone a higher one. Let’s assume we go with Delaware’s proposal to raise minimum wage to $10.25 by 2021. This is a $2 increase to the current price floor for labor. This may not seem like a lot, but for a business owner it could be disastrous. Raising the minimum wage to $10.25 an hour, or $15 an hour like many advocate, would be a disaster for the restaurant industry. On average, restaurants make only 5 dollars in profit for every 100 dollars in sales. It is already hard enough on restaurants to pay employees (which is why waiters get tips in exchange for lower wages). However, this is not always the case, and in many cases, employers would be forced to cover the full increase in the minimum wage.
This will lead to two major detriments. First of all, employers may need to cut back on their staff. A small business with a low profit margin may not be able to pay its employees a higher wage. As a result, the employer will likely lay off some workers to afford the wages of others. Also, a minimum wage increase may lead to an increase in prices. To afford to pay higher wages, employers are likely to have to raise their prices. However, any government policy that leads to price hikes is bad for the economy. Prices and wages should go up and down based on market forces of supply and demand.
Conversely, proponents of the minimum wage argue workers will be taken advantage of. Many claim workers will not be paid their fair share. Yet, this is simply not the case, and economic competition disproves the notion. Prices on labor follow the same economic forces as prices on goods. Just as nobody will pay 20 dollars for a cheeseburger, no one will work a job that pays 10 cents an hour. Thus, a business owner will look at profits and determine a wage that people would be willing to work for. That’s how it works for all jobs, and laws cannot substitute this process efficiently.
My final point is that minimum wage jobs are simply not meant to be a career. They ares stepping stones to that point. Many people’s first jobs are minimum wage jobs. The jobs are often marketed to high-school or college students trying to gain experience. Also, many of these workers, given good performance, receive a raise in their first year. Clearly, wages would be determined by the economy, not by government.