In a repressed or depressed economy, people often clamor for the federal government to increase minimum wage laws as a way to combat poverty and help struggling individuals. However a noble plight this may be, it is actually counterproductive to the end result they wish to see. Minimum wage hurts poor or unskilled workers, small businesses and minorities, costs jobs and raises prices of goods or services while helping union members and encouraging illegal immigration.
Victim Number One: Poor or Unskilled Workers
While on the surface, minimum wage laws or increasing minimum wages from a federal level seems like it would be a benefit to workers and society as a whole, the opposite is true. The University of California in Irvine conducted research focused on how minimum wages and any increases affected workers with little to no skill. The study found that minimum wage laws and their hikes clearly and significantly reduced employment for unskilled laborers. For every ten percent minimum wage increased, employment for the unskilled worker was reduced by 8.8 percent. The bottom line, in a tough economy with an even tougher job market, a job at fair market value is much more beneficial to the low wage worker than no job at all under minimum wage laws.
A fifty year study conducted by the Joint Economic Committee of the US Congress also found that minimum wages:
• Do nothing to reduce or alleviate poverty
• Hurt the poor the most
• Hurt the low wage worker
• Hurt minorities
• Reduce employment opportunities for teenagers
• Reduce employment the most for young black males
• Reduce overall employment
Victim Number Two: Small Businesses
When small businesses are mandated to raise their employment wages to the federal minimum level they are forced into a choice of raising the price of their goods or services and maintaining their same staff or keep their prices the same and fire select workers. Either choice ultimately damages the economy, leads to higher prices and raises unemployment rates. If they choose to raise their prices, the cost is passed on to the consumer which leaves them paying the higher price and having to relinquish more of their paycheck for the same product or service as before. If they choose to keep their prices the same, then they have to let some of their employees go or reduce their hours in order to afford the price increase. While minimum wage laws lead to a few people earning ‘decent’ wages, they also lead to several people having no job at all. The fewer people who have a job, the fewer people can buy the goods and services offered by these small businesses. This increases the supply, but not the demand which further damages a weak economy. Small businesses employ over fifty percent of the working class, so it is not too hard to see how minimum wage laws hurt the small business sector of the American economy and cause unemployment to rise.
Victim Number Three: Non-Union Workers
Having or increasing federally mandated minimum wages hurt the non-union laborer and benefits union workers who earn well above the minimum wage. Labor unions are amongst the biggest lobbyists for and supporters of minimum wage laws. As much as they would like to claim this to be an altruistic gesture, the truth is it helps their members. A higher minimum wage raises the cost for an unskilled worker. Employers are not going to pay the costs if they feel the employee is unskilled or not worth paying for the job being performed. Skilled workers then become more appealing to an employer. When minimum wage is increased union workers wages raise an average of twenty to forty percent when competing against a non-union worker. Minimum wage laws also leave the unskilled worker with fewer job opportunities and reduced working hours or no job at all. Wages may go up, but only for those fortunate enough to keep their job.
Victim Number Four: American Citizens
Minimum wage laws are not only ineffective, but they encourage illegal immigration. If an employer or small business owner has a job they believe is worth $5 an hour, but the government mandates they pay $7 or higher, than they have an incentive to hire an illegal immigrant who is willing to accept $3 an hour. It is not about Americans not wanting to do certain menial jobs; that is the way it should be in a strong free market economy. There are too many regulations imposed on today’s small businesses. The more regulations placed on a business, the higher the cost will be from production to maintenance to employee or labor cost. When a small business has the choice to choose between an illegal immigrant they can afford and the chance to stay in business versus following government mandates for labor costs and going out of business, they are going to choose hiring someone under the table nearly every time. The small business loses and the American citizen looses. An out of work laborer would be in much better shape with a $5 an hour job rather than no job at all. However low that may seem, the less regulations there are and the better chance a small business can make a profit. The employee wage begins to be another competitive commodity and their wage will be increased naturally as the free market sets the value for labor. The incentive for illegal immigrants to seek a job here would also be reduced as there would be fewer job openings available. Without the demand, there is no reason for the supply.
Victim Number Five: Teenagers
Before minimum wage laws took effect, it wasn’t unusual to see a teenager working alongside his parents, at the local store or at various businesses. In 1994 more than half of the teenagers 16and older held a summer job, contrast that to 2010 to barely a quarter of teenagers in the same age group with a summer job. Teenagers learned valuable work ethic and work skills that would carry through to their adult lives. They learned independence as they learned the value of making their own money. Most teenagers do not have a rent or mortgage to pay or grocery or utility bills due every month and can afford to accept jobs that pay below minimum wage. Minimum wage laws have closed this door of opportunity for many teenagers and most low paying jobs now go to illegal immigrants. In 2007 when Congress pushed minimum wage laws from $5.25 to $7.25 over a three year period, unemployment for teenagers aged 16-19 went from 14.8 percent in the beginning of the year to 27.1 percent as the final stages of the law were passed. The only way an employer can afford to pay wages is if the person has the skills to justify the cost. Most young workers are relatively unskilled, so most employers cannot afford to pay to train them when there are plenty of applicants that do possess skills are so readily available. Minimum wage laws hurt young and unskilled workers that need a foot in the door more than they need what the federal government deems a fair wage.
The free market has an alternative and practical solution for every economic issue, if it would be given the chance. Minimum wage laws claim many victims, including the economy overall. They hurt poor and unskilled laborers, non-union workers and the American citizen while union members and big corporations enjoy the profits all the way to the bank.