I see that the Democrats in Congress started out the year by voting to raise the minimum wage to $7.25 an hour. While this a very popular proposal it is not particularly sound economic policy.
The main argument for raising the minimum wage is that it helps lift people out of poverty. This is a spurious argument at best and cynical at worst. If this argument were true we could go to all those poor countries in Africa where poverty runs rampant and simply have their governments pass laws establishing a fair living wage. According to the proponents of such laws this would end poverty in those countries but we all now that such a law would not work. Fighting poverty is much more complex than setting a floor for wages. The reality is that raising the minimum wage does very little to lower poverty rates.
Another argument I often hear is that nobody could raise a family making minimum wage. The problem with this argument is that the facts do not suggest that many people are raising their family on $5.25 an hour. The truth is that less than 5 percent of all US workers make the current minimum wage and a majority of those workers are high school and college age. These students are unlikely to be in the position of having to raise a family. And even for those older workers who are earning minimum wage, almost all of them will eventually either earn a raise or take their acquired job skills and work somewhere else for more money. Virtually no workers start at minimum wage and end there.
The truth behind minimum wage laws is that they hurt the people that they claim to help. Low skilled workers are only worth a certain amount of money to a job provider. If a worker at McDonald's is worth 6 dollars an hour in terms of productivity it makes sense for McDonald's to hire that worker at $5.25 an hour. But what happens if McDonald's has to pay them $7.25 an hour. Now it makes no sense for them to hire that person and instead of making $5.25 an hour and learning job skills to make him more productive that worker is now unemployed. This trend has a disproportionately higher impact of young black males who are trying to enter the workforce for the first time. This is also why proponents do not set the minimum wage higher because they don't want to potentially put their own jobs at risk. They assume they are worth more than $7.25 an hour but what if minimum wage were $20 an hour. If the goal is to raise people out of poverty wouldn't that make more sense because who can get by on $7.25 an hour? But under that scenario many middle class workers who were only worth say $15 hour would lose their jobs.
Let me address another problem with raising the minimum wage; increased prices. Here in Michigan we raised the minimum wage to $6.95 an hour last October. Since then I have noticed a hike in prices in every industry that hires entry level workers. So while minimum wage workers may have more money to spend the cost of living has gone up for every Michigan worker. One small example: before the wage increase you could buy a bottle of soda for roughly $1.29. Today it is sold for $1.79. Fifty cents doesn't seem like much but then that cost is added to multiple products the costs add up quickly for low and middle class workers.
To sum up; minimum wage laws do not decrease poverty, they lead to higher unemployment and raise prices for the consumer. Somebody please tell me why these proposals are so popular.
6 comments:
If only everyone could spend a semester with Pongracic, this never would have happened.
And it looks like you had him too.
Don your assuming the marxists use logic for what they believe.
Jets Pizza raised their prices here in Lansing so they now get less business from us - not that we got pizza that often but I'm sure like you said about the soda it adds up and Jets won't need as many employees.
I never had Pongracic but I sat in on Dr. Martin's class that covered the book Free To Choose by Milton & Rose Friedman. I remember discussion about a free market and how the government may have good intentions but gets in the way with regulations, etc.
Thanks for the post Jeff. Hope you are having a good year.
And Michigan Republican Legislators led the effort to raise the minimum wage here last year. Apparently they now believe in these Marxist wage control policies too.
We "marxists" (ya'lls language, not mine) do use logic. We just don't inherently trust that market will always work in the best interest of workers and believe that from time to time government needs to step in and mediate.
Most people who advocate a minimum wage do not fear putting our jobs at risk. We are just saying that there is a minimum amount that work is worth in this this country.
You are right, lifting folks out of poverty is incredibly complex, and throwing money at the problem is not the solution. But raising the minimum wage can be a tool to do that.
I'm not going to blog in your comments. You know low-wage worker issues is what I do everyday. I just wanted to chime in for the "Marxists".
A couple more things, I couldn't resist...
~Entry Level Work~
Many people assume that minimum or low-wage work is simply entry-level work and that people will take the skills and move on. Which is great. But, just because someone is using a job as a stepping stone to a career, doesn't mean they should get crap wages for the work they do.
Raising the minimum wage is about valuing work. I know that sounds like campaign slogan - but, in my mind, it really is that simple.
While many individuals see low-wage work as a stepping stone, others, like child care workers or direct-care givers, see it as a career. One that is vital and necessary both in our economy and in our society. And whose value should be reflected in what we pay these workers.
~Increase in Price~
An increase in prices is a given that is often not articulated in minimum wage/living wage policy and campaigns. So then consumers simply see that the cost of something goes up, they don't make the connection to an increase in wages, and react to the higher price and refuse to pay the higher cost services, leading to a decrease in revenue and then laying off of jobs. It's an unintended consequence of the policy that is simply brushed off as those "greedy evil heartless businesses" or “those heartless Republicans” when the Chambers or Repubs bring it up.
Proponents of minimum wage policies and campaigns have to get better at articulating both a business and a consumer message so that all sides can see some benefit of minimum wage policies. For businesses in certain industries that may mean pointing out how low-wage work contributes to difficulty in attracting and retaining more committed workers and decreasing their recruitment costs due to high turnover. For consumers, that may mean tapping into people's more altruistic side by having businesses put up signs that indicate that they are paying their workers a higher wage and knowing that that extra $1.50 for your pizza means that Joe is making an extra $.30/hour. Creating transparency to consumers and a different type of competition. It's why I don't have a Sam's membership, but would go to Costco if Lansing had one b/c I know they pay their workers better and they get affordable health insurance.
I’m not sure if such an approach would get you businesses or purely "free market" folks to ever see a minimum wage increase as a win. But, maybe the loss won't be as hard or the battle lines so deeply drawn.
~One Last Thing…for Real~
If signed into law, the minimum wage increase is incremental and will go up over the next two years in $.70 increments. Such a modest incremental increase is much more reasonable, from a policy perspective, than the MI increase. The "hit" that businesses take will be much softer than the MI increase, which raised the minimum wage $1.80 in 6 months.
I guess I did blog in your comments, Jeff. But, you asked for someone to tell you why they are so popular. ;o)
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