Minimum Wage Increases: More Layoffs to Come
Today marks the second set of three minimum wage increases due to last years Democratically pushed Fair Minimum Wage Act. Today's jump increased the minimum wage to $6.55 and hour. The third set of increases will occur next July (2009) to $7.25 an hour.
Minimum wage is a contentious issue. There are two competing thoughts in the matter. The first is made by Democrats in order to garner more votes from the poorer classes in society spewing rhetoric how these people have given an unjust situation in life. The other group stands on principle on the facts that demonstrate that minimum wage has a detrimental impact on economic and job growth.
Economic Results of Minimum Wage Increase
A study carried out by Dr. Josephy Sabia of the University of Georgia for the Fiscal Policy Insitute presents clear evidence to the detrimental impacts of minimum wage increases especially among low-skilled and entry level workers. It should be noted that the information from this study was obtained from government data from 1979 to 2004 related to retail and small business employment. Keep in mind today's increase was 11.96% and 19.8% since the act has been passed. After the final increase minimum wage will have increased over 27%.
For every 10% increase in minimum wage, it will lead to the following:
1. Retail Employment
- .9-1.1% decrease in employment
- 2.7-4.3% decrease in employment among teens
- 5% decrease in average retail hours among all teens
- 2.8% decrease in average retail hours among teens who remain employed
2. Small Business Employment- .8-1.2% decrease in employment
- 4.6-9.0% decrease in teen employment
- 4.8-8.8% decrease in average hours among teens
Other Economic Impacts
Some would then ask why politicians would even consider raising a rate that affects primarily teenagers who remain dependent to their parents and around .5% of total employment. The answer is the power of unions. The Democratic Party has been corrupted by the detrimental impacts of unions. Unions generally negotiate wages directly towards a factor of the minimum wage. Taking the current number of $.70 and doing some simple math we can demonstrate. A factor of 2 will increase wage by $1.40, 3 by $2.10, 4 by 2.80, and so on. This as you can imagine will have to result in an increase in price among the widgets (general term for a miscialneous product) that the widget factory creates.
One aspect of increases should be mentioned. Take the impact of a person who made $6.55 yesterday. This was $.70 above minimum wage at the time and above lower level employees. To maintain the same standard of living because of the increase in cost in consumer goods and services that employee's wage would have to increase as well, which is up to the discretion of the employer. This will have a negative impact on that employee and many others who will have taken in effect a pay decrease with the mandatory increase in minimum wage.
Companies will seek to maintain their profit. In order to do this they must do one of several or combine several aspects. 1) Move jobs to less regulate areas (overseas). 2) Decrease employment (usually the first step). 3) Increase modernization efforts to decrease reliability on people in the production of their product. 4) Increase the price of their goods. All of these will have detrimental impacts on the American economy by moving economic investment into offshore markets, decrease job opportunity especially amongst low-skilled or low educated workers, or decrease the purchasing power of other workers who did not receive a corresponding raise by artificially increase the price of their goods.
For other economic impacts which I will not cover here to save space view this Joint Economic Committee Report in 1996 that points to the job decrease of nearly 625,000 jobs mainly at entry level when minimum wage was increased from $4.25 to $5.15. The report also cites many other negative impacts of the increase.
Conclusion
Companies pay their employees as a compilation of many different characteristics. Some jobs like a burger flipper are inherently by their nature require less skill and can be filled by a greater segment of society making these jobs easy to fill and less valuable earning the employee less income. Artificially elevating the income of these employees by governmental regulation will require cuts in other areas of buisness to maintain the profit margin or increase prices.
Quite simply companies will pay people what they are worth and their is a reason why those making minimum wage are earning what they are. They have made poor personal choices that have placed them in the situtation by neglecting their education/training, having children they could not afford, spending money on unnecessary items like cigarettes, alcohol, or the latest technology, or by acting in a manner that does not reflect well upon them-self and the potential company that might hire them.
Wage's if left to the free market to decide will be adjusted to what society and individuals are willing to accept. An employer who pays $1/hr for an employee may not be able to find a person to fill this position or at least the quality of person they desire while an employer who pays $4/hr will be able to. If an employer does not pay enough the job will not be filled requiring the company to increase the wage until it is acceptable.
Artificial pay increases such as minimum wage do not have a net positive impact on any groups with the exceptions of those who negotiate their salary as a factor of minimum wage like labor unions. When a politician says minimum wage increase it is not meant to benefit those making minimum wage. It is a tool used to pander to lower income families for increase power and job security in the form of votes, nothing more. Either that or they are beholdent to the special interests of labor unions. Either way they do not deserve the vote of Americans.
More layoffs are coming. Let's hope its not your job!
Sources
Fiscal Policy Institute: The Effect of Minimum Wage Increases on Retail and Small Business Employment
Minimum Wage to Jump by 70 cents Thursday
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Joint Economic Committee Report: The Case Against a Higher Minimum Wage
Joint Economic Committee Talking Points: 50 Years of Miminum Wage Research
