If there is one thing the politicians in D.C. are good at it’s overlooking the indirect effects of their policies. To most voters, a proposed increase in the minimum wage sounds like a simple yet effective solution to the problems of low-income Americans. It is as if the government is doing them a favor by making sure they get paid a fair wage.
They’re not. Continuous hikes in the minimum wage hurt everyone except labor unions.
Plenty of Americans would be willing to work for less. But labor unions everywhere force employers to keep the employees they already have, now at a higher cost. Forget hiring a fresh college graduate with new skills to bring to the labor force. These costs are passed onto consumers, and are damaging to the long-term health of any business with unionized workers. Millions of Americans are unemployed, and millions more have given up looking for work. These people have the right to work, without interference by the government or some union. Likewise, businesses have the right to hire based on its needs.
Every business and every employee has different needs. The government deserves no role in the employer-employee relationship, mainly because it would be impossible for a bureaucracy of any size to acquire, let alone comprehend, all the details about a certain business.
Democrats will throw out these figures on how minimum wage increases further purchasing power and stimulate the economy. But they base these numbers off of an assumption that all else will remain the same. The indirect effects of minimum wage increases prevent the stimulus Democrats believe in. Here’s why:
First and most obviously, labor becomes more expensive. An extra $1.00 per hour hurts business more than it helps individual workers. After all, a business with 100 workers will be paying $100 more per hour, while each individual worker is only earning one more dollar per hour. Remember, that business may have to do what countless other businesses would have to do and lay off some of their workers, to minimize the new costs. That’s not capitalistic cruelty, that’s how businesses must respond in the face of government intervention.
Second, an increase in the cost of labor means an increase in payroll taxes. Look at the case of Jason Lerner, who owns five child care facilities in New Jersey, where the minimum wage rose from $7.25 to $8.25 per hour on January 1st. “The minimum wage increase is not just the dollar an hour, but it’s also a raise in our taxes,” said Lerner. His company, Little Learner Academy, has had its payroll expenses increase by 10.5% thanks to these new taxes.
Third, hikes in the minimum wage increase other costs for businesses, again hurting employers, employees, prospective employees, and consumers. Just ask Mike DeRosa and Gene Hatfield, who own several Burger Kings in Wisconsin. There, the minimum wage is $7.25, but DeRosa and Hatfield are frightened by President Obama’s push to raise the federal minimum wage to $10.10 over three years. DeRosa said that an increase like that would cause his vendors to “raise their prices on things like snow plowing, CO2 delivery, equipment repairs and baked goods,” due to the fact that many of those vendors will see their own expenses increase with the minimum wage.
The facts are clear. Two-thirds of minimum wage workers make above that amount a year later. This is true because minimum wage jobs are typically entry level jobs, and as long as this labor remains cheap employers can hire and teach necessary job skills without much risk. With these new skills, employees can advance and earn more on their own. But a drastic increase in the minimum wage, as proposed by President Obama, would prevent this, as it would be more expensive to take the time to teach valuable job skills.
The minimum wage is not what it seems. Do not be swindled by the rhetoric of politicians, especially those politicians who advocate government intervention in private business affairs. Only the free market can lead free people into economic prosperity.
Terence Ford | Pennsylvania State University | @tford616