The No Kool Aid Zone

Raising the Minimum Wage: Bad Idea (Part 1)

Posted by Byron November 23, 2006 at 11:23 pm
Filed Under Conservative/Libertarian Politics | Leave a Comment |

Bob Robinson, a proponent, I think, of raising the minimum wage, suggested that he and I devote a post or three to this topic, this after I asserted on his blog that the idea of raising the minimum wage was, at the same time, bighearted and wrongheaded. He can quote a statistic or three, I have little doubt, that suggest that “unemployment is low in states with high minimum wages”, and I don’t doubt the truth of some of those. What I think is true, of course, is that there are any number of factors that might influence unemployment rates, both pro and con, and that the raising of the minimum wage affects more than the unemployment rate, which is one point of this post.

So I want to engage in a small-scale explanation of the negative effect of raising the minimum wage. Before I do, though, we ought, to be fair, to weigh the supposed positive outcome of such a move, and there is clearly one: some people, who currently receive the minimum wage, will automatically (for “free”) begin to receive more money in their paychecks. This is supposed to help poor people, and it’s hard to argue that, for those people who receive minimum wage, and maintain their jobs, their income will benefit by such a move. That’s not an insignificant thing for the affected folks, of course; an added dollar an hour will add, plus or minus, another $2000 to such a person’s gross income in the course of a year (assuming a 40-hour work week). Further, a certain amount of “ripple effect” will take place as well; what happens, for instance to those making above current minimum but below the new minimum? They must be raised to the new minimum; they will benefit from this. What about those who make right at the new minimum and find new workers brought on at an amount at or near where they’ve worked their way to? They’ll likely receive some sort of increase as well.

It’s hard for anyone with a compassionate heart not to be encouraged by the raising of people’s incomes, particularly the poorer among us. But the question is, does raising the minimum wage effect an overall good? The answer here is “no”, that the negative effects of doing so outweigh the positive gain—and I’d suggest that it’s probably not even that close. It has negative effects upon the poor as well. So here we go.

Businesses are in business, of course, to make money. As a Christ-follower, I recognize that this ought not be the sole motive, or even the primary one, for Christ-followers—but it is an important one, and for the more secular employer, it is the “bottom line”, of course. Things which make it easier for companies to turn a decent profit tend to be beneficial across the economy, whereas those things which make it more difficult tend to affect the economy negatively. Raising the minimum wage, of course, affects many employers (certainly not all, for some do not pay minimum wage to any employees) in a negative way when it comes to the bottom line; it makes it harder to make a profit. This is hard to argue; if I deem Employee A to be worth only minimum wage (or less!), then to have his wage artificially inflated—he’s done nothing to earn a raise; it’s been handed down by fiat—exerts a totally negative force upon my whole bottom line.

Here is where it seems to me that the enthusiastic supporters of minimum wage are short-sighted. Some people seem to follow what I’ll call the “Big Ol’ Bag o’ Money” Theory. I’ll put it on the lips of Joe Six-Pack: “well, if the minimum wage is raised, then some of these employers are just going to have to dig deeper into their big ol’ bag o’ money to pay people more!” Now, I’m sure that there must be, somewhere on the Fruited Plain, some employer who has enough jack sitting around to respond to a minimum wage increase by saying, “ah, heck, ya got me; I should have been paying you guys more. Here, help yourself to an extra dollar an hour; after all, I’ve got this big ol’ bag o’ money sittin’ here!” I’m also sure that blind squirrels find acorns occasionally…more later.