Tag: wage

Raising the Minimum Wage Will Harm Workers and the Economy

By Othman Mekhloufi | United States

Left-wing and Keynesian economics have overwhelmingly called for an artificial raising of the minimum wage. This has been due to the belief that all workers must be paid a living wage regardless of their line of work or skill set. Essentially, this is a belief that it is unfair to not compensate workers with a living wage. However, to require employers to compensate their workers with higher wages will only play to the disadvantage of said workers through the inflation of prices, unemployment, as well as the cutting of work hours. Hence, resulting in a worse off economy for all individuals, and simply an unpragmatic economic policy.

The minimum wage is the legislated minimum amount of money an employee may be legally paid for their work. This minimum wage, whatever it may be, is not necessarily a living wage, but rather a wage paid for jobs which require a minimum amount of skills. For instance, if a worker were to create more than twenty dollars an hour for their employer, they would be compensated for twenty dollars an hour, or less. In essence, workers are paid according to how much they produce, and how much is possible to pay them. Such a method of compensation allows businesses to remain financially afloat by being able to make money at all, and, in turn, pay off expenses.

As a general rule, it is positive for all individuals for a business of any size to remain afloat. When businesses are present in the economy, it allows for a product and/or service to be provided to the consumer end of the market. In addition to this, jobs are created with the existence of the business, as well as its future expansion. 

However, when the minimum wage is artificially raised by the government, employers will be legally required to compensate some of their employees for possibly more than they initially produce.

Considering small businesses, this will result in one of two major negative economic repercussions. The first of which is work hours getting cut and employees getting laid off, resulting in the business most likely ceasing operations. The second impact is inflated prices, resulting in individuals, as well as the economy, being harmed. 

When small businesses must compensate their employees for more than they initially produce, compensation is rendered financially impossible. As a result, small businesses will be effectively forced to lay off employees, causing unemployment.

Having to lay off many employees, small businesses will be unable to continue their production, resulting in businesses being forced to cease operations. Considering the fact that small businesses are not as large-scaled as others such as McDonald’s, automation to replace workers would not be a viable option as it would be unaffordable.

Through causing small businesses across the board to cease operations, unemployment is bound to be brought upon the economy. In addition, the product and/or service that the business initially provided to the consumers would be brought off the market causing additional burden to customers who relied on said product and/or service.

For example, if a small business has workers that produce thirteen dollars for each hour of work, but compensates said employees seven dollars and twenty-five cents an hour, it would allow for the small business to rake in five dollars and seventy-five cents per work hour after paying employees. These five dollars and seventy-five cents would be used to pay other expenses, make a profit, as well as generally stay financially afloat. However, when the government is to raise the minimum wage to fifteen dollars an hour, the small business would be forced to pay employees two dollars more than they initially produce. In turn, the business would begin to lose two dollars for every work hour, as well as experience a total absence of income. In light of having no income, and losing two dollars an hour to compensate said employees, and to remain financially afloat would be impossible. Such would result in the small business having to lay off said workers.

In this case, automation would not be a viable option for said small business as it would be unaffordable. In the case where it would be affordable, said business would not be small, but rather one of larger scale.

Due to being unable to automate, and having a lack of labor, the small business would be unable to produce the product, and/or service which was initially produced. In result of such, the said small business would be forced to cease operations.

To avoid laying workers off and, in turn, ceasing operations, small businesses have the option to raise prices to remain financially afloat. However, this option is in itself still a negative economic repercussion for both the consumer, and the business. If businesses are to raise prices, many customers would be driven to competitors who offer a cheaper price, or would simply cease purchasing said product and/or service as a whole. In turn of such, businesses would begin to lose out on income, and the customers who remain would be financially burdened with higher prices.

Such economic repercussions are not limited to small businesses as the same has occurred with Starbucks in 2018. Starbucks had announced that it would be closing roughly three times as many stores in 2019 than it usually would in a year. The closures of these Starbucks locations will be focused in densely populated and urban areas on the west coast, as well as in the northeast where the minimum wage is particularly high. Starbucks CEO, Kevin Johnson, had stated that the affected stores are “in major metro areas where increases in wage and occupancy, and other requirements are things that were making those stores unprofitable.”

In the case of larger scaled businesses and corporations who would not go out of business due to an increase in the legislated minimum wage, negative economic repercussions would continue to take place.

When the minimum wage is artificially increased by the government, businesses that are able to stay financially afloat while paying their workers more will experience income loss nonetheless. Businesses, in all cases, will want to mediate income loss to the greatest possible extent for furthermore profit. To deter such income loss through spending less money, said businesses will cut work hours, lay workers off, as well as raise the prices for their services, and/or products.

Inflation of prices would drive customers to competitors, as well as cause the business to lose out on income as a whole. Because of this, price inflation is an unlikely method to combat a loss of income for larger scaled businesses as they can afford other means to do so. Most prominent of these other mechanisms to cut income loss is to cut work hours, as well as lay off employees.

This was seen in an estimation made by the Bank of Canada stating that over sixty-thousand jobs will be lost by the year 2019 due to minimum wage hikes; along with a study conducted by the University of Washington which had observed that after Seattle’s minimum wage hike from $9.47 to $11.50 an hour, there had been only a one percent decrease in low wages.

When workers are laid off to mediate income loss, they must yet again be replaced by an entity to continue doing the necessary work the business requires. In response to such, automation of labor comes into play. We witness this in today’s world as McDonald’s has announced that they will be replacing cashiers with automated kiosks in all 14,000 of its U.S. locations as of 2020In addition, McDonald’s had announced that it was prioritizing such automation in locations with prominently high minimum wages such as Seattle, and New York City.

After nineteen of the American states had announced a minimum wage increase to ten dollars an hour in January of 2017, a month later in February, the CEO of Wendy’s had announced financial shifts within the company. Wendy’s CEO had announced a four percent rise in wages, along with an eight percent loss in margin. In turn of this, although not confirmed, but evidently understood with the previously explained economic theory, Wendy’s had announced a plan to install automated kiosks sixteen percent of its locations; a cheaper alternative to conforming to the minimum wage hikes and paying workers more. 

With all economic theory, and evidentiary claims considered, it can be understood that artificial hikes of the minimum wage will indeed result in unemployment, cutting of work hours, shutting down of small businesses, as well as the inflation of prices; all resulting in a furthermore disadvantaged financial situation for workers, the individual, as well as the entirety of the economy itself. Therefore, inherently proving that a hike in the minimum wage would be detrimental, and counterproductive to the goal of left-wing, and Keynesian economics.


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The Libertarian Case for a Minimum Wage Hike

Nate Galt | United States

The federal minimum wage has been a controversial issue ever since it was introduced by President Roosevelt in 1938. Proponents of raising it say that it will help job growth and reduce poverty. However, opponents believe that raising the federal minimum wage will lead to layoffs and closures of small businesses. In all, the current federal minimum wage of seven dollars and twenty-five cents per hour is not a wage that someone can afford basic necessities with. People who are paid the federal minimum wage should be able to afford things such as clothes, food, and a roof over their head.  Raising the minimum wage has been an issue adopted by “progressive” Democrats and the Green Party. 

Taxpayers are paying for the minimum wage, just indirectly. They subsidize programs such as Food Stamps while large corporations save money by not paying their workers a living wage. This is extreme inequality because that money should go to workers employed by these corporations, not into the pockets of billionaires who try to cut corners by paying their workers very low wages. 

Raising the minimum wage would help the economy. According to the Economic Policy Institute, a minimum wage increase to $10.10 an hour would make $22.1 billion flow into the economy and would create about 85,000 new jobs in three years. Further, economists from the Federal Reserve Bank of Chicago made a prediction that if the minimum wage were to rise by $1.75, household spending would increase by $48 billion in the next year.  While these are merely predictions and are imperfect, they show that household spending increases as the minimum wage is raised. This boosts the gross domestic product and spurs job growth. For example, in Snohomish County in Washington State, there were no local minimum wages higher than the state minimum of $9.47. The state then raised the minimum wage to eleven dollars per hour. The full weight of the $1.53 increase, or over 16%, was assumed by employers. Subsequently, sixteen thousand jobs were created in Snohomish County. 

Some people say that raising the minimum wage hurts small businesses. According to Think Progress, two-thirds of “low‐wage workers are not employed by small businesses, but rather by large corporations…” Also, the three largest employers of minimum wage workers are Walmart, Yum! Brands (Pizza Hut, Taco Bell, and KFC), and McDonald’s. A hike in the minimum wage will not make large corporations like Walmart shut their doors, and its workers will benefit from it. 

Another reason the minimum wage should be raised is that it is impossible to afford rent in every state if one is paid $7.25. The state with the lowest “living wage” is South Dakota at just over 14 dollars, which is nearly double the current federal minimum wage. The definition of “living wage” is the bare minimum salary one needs to be able to afford rent, basic clothing, and groceries without skipping meals or receiving aid from the federal government. People who work full-time and are paid the minimum wage cannot provide basic necessities for themselves and their family, let alone afford to pay rent. Right now, this is the case, and millions of Americans are in a dire financial situation because they live on around only fifteen thousand dollars per year if they work full time. These people receive benefits which are subsidized by taxpayers because their employers do not pay them an adequate wage. As a result, businesses are saving money while taxpayers have to pick up the burden. If people get a living wage, they do not need to rely on taxpayer-funded public assistance. Better pay would let the government cut a lot of taxpayers’ funding of the money that it currently spends on programs to help counter poverty.

Others say that if the current minimum wage were increased, the price of items would increase. However, researchers at Purdue University found that increasing the wages of fast food workers to $15 an hour would only result in a price increase of around 4 percent. 4 percent of the cost of a Big Mac is around 23 cents, which is not a significant amount of money. The workers will have their wages doubled and will be able to make ends meet. Despite the negligible increase in prices, workers would end up with more money in their pockets and would be affected positively by this positively.

Increasing the minimum wage to 15 dollars would benefit the economy. It helps boost the GDP and job growth, and it alleviates taxpayers’ burden of paying for welfare. $15 per hour will allow minimum wage workers to make ends meet and to afford housing, clothing, and food without having to rely on government programs such as food stamps. It would reduce the number of Americans living in poverty as well. All of the above benefits have no significant drawbacks, so the only logical thing to do is to support raising the minimum wage to $15 per hour to help workers, the economy, and your tax rate. Should businesses get so-called “corporate welfare” while taxpayers have to foot the bill? Even though raising the minimum wage seems like a leftist, Bernie Sanders-type policy, all libertarians should support it. Taxes, welfare, and other benefits would be cut, leaving more money in Americans’ pockets. 


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Minimum Wages Only Hurt the Economy

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.


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We Should Not Change the Minimum Wage. Here’s Why.

By Nick Hamilton | USA

You’ve heard both the left and the right assert their claims. The left claims that we need to raise the minimum wage as high as $15/hour. The extreme economic right claims that we should have zero minimum wage at all, and many people on the right who desire a minimum wage say that our current federal standard is too high and too harsh on businesses. However, the real solution to maintaining a stable economy isn’t raising or lowering the minimum wage; we should instead keep it the same federally, and leave it up to the states.

Here’s why we can’t raise it: inflation. The inflation that raising the minimum wage would cause is unimaginable. First off, struggling business owners would be forced to lay off employees, or if their company needs a lot of employees, they may even go as far as needing to shut down their business entirely, as they’d have not enough employees or money to function. Not only that but to be able to afford to even pay the employees that the business IS able to keep would require businesses to raise the price of their goods or service. This drives customers away, and it gets to the point where there’s an abundance of supply, but not enough demand. However, the business cannot lower prices, because they need every penny of every sale in order to comply with a $15/hour regulation that the government put intact.

Now, let’s go the opposite direction for a second. Lowering it isn’t a good idea either. Imagine yourself working hard in a factory, working 12 hours a day, 7 days a week. Under our current federal minimum wage, the lowest you can make would be around $609 per week with those hours, and with around roughly 10% taken out of that for taxes, you’re looking at around $550/week. You need that $550 in order to try and live your life, and in some cases, even raise children. However, if the US decided to abolish the minimum wage, businesses would be legally obliged to pay $0.00 an hour, or $0.00 a week, therefore making more people apply for welfare, which costs who money? The taxpayers!

Lowering the minimum wage from $7.25 could cause undesirable outcomes. Look at Bangladesh and their beautiful worker’s rights record. People work incredibly long hours for a few bucks in Bangladesh. Also, a lot of people overlook this, but our neighbors down south aren’t exactly dishing out the dough either. Mexico’s minimum wage equals out to around $4.00/hour. We have an immigration problem in this country, and one big reason is that people want to make more money while working the same hours in America! So, do we really want to lower the minimum wage? Do we really want to put OUR citizens in the same financial boat that many Mexicans are in right now?

Therefore, both sides are wrong in this argument. Raising the minimum wage isn’t the answer, and lowering it is just as bad. Therefore, we need to keep the federal minimum wage at $7.25, and if the states decide that they want to cause inflation by raising the minimum wage, that’s their problem, not the US’s problem as a whole.