The reason why this is interesting, is that economics is a science and y calculating numbers and applying theory to reality one should have a definitive answer on whether or not the minimum wage is good. However, that is not the case. Economists split down the middle, and they essentially have access to the same data, thus the results should be the same. No, the results should not be the same, as although everyone has the date, the points used for calculation can be picked and chosen thus getting different results. While the theory applied and the formulas the same, the data points one can use though might differ. Thus the differences in results and opinions. While I agree raises in minimum wages cause job losses and are harmful to the economy I also agree that there is a definite widening of the income gap. This post will try to explain the minimum wage argument and potentially offer a couple solutions.
First, in the history of the United States, the minimum wage was meant as an entry wage, to earn needed job skills and people experience. The intent was for younger workers, usually in high school and college to earn these wages and learn how to act and work in society as they then progress up the ladder. However, after multiple decades of economic growth and also economic recessions, changes, regulation and severe population growth both legally and illegally have created a drain on the economy and thus people that should not be in minimum wage jobs are, either because they could not find another job or because their employer in order to compete changed wage scales. When this has occurred, and the jobs for skilled and educated people, due to the high cost for those positions has decreased, thus forcing educated and skilled and educated laborers to seek different jobs and also due to economic challenges, individuals who would retire normally at a certain age feel they have to stay in the workforce thus employers keep the experienced people, or the make the decision to hire younger less educated people at a cheaper price, either way putting more people than should be into a minimum wage position.
Because of that increased group in minimum wage positions, there is even greater pressure in the society to drive up income so that people are above the poverty level. This is great if we lived in a perfect world, however, we are in an economic world and each time the minimum wage is raised, the costs permeate through the system and then the people getting minimum wage fall farther and farther behind and thus there is a requirement to raise the minimum wage.
Recently, California and New York have signed into law an increase to $15 an hour and Seattle and other cities have increased their as well by the year of 2022. While this is not fast enough for some, it is too fast for business owners. Some groups, usually unions, want the raises to occur quicker. Unions are a factor in the minimum wage debate, not because their workers earn minimum wage, but because most contracts for unions are an actor of the minimum wage in the area, an increase in the wage, increases their wage as well. However, most people make salary. Well when the hourly wage goes up and the less skilled people, the wage earners, are now making equal or close to the salaried workers, they demand pay raises, and thus the system starts all over again.
Now that we have discussed the general discussion let’s look at the common things that people miss in the argument:
- Most minimum wage workers now, according to the department of labor, are an average age of 48, where’s even ten years ago the average age was 23.The reasons for this have been discussed above. Thus people are trying to support families on the wage level that does fall at or below the poverty level forcing more than one job or multiple family members working in the household.
- Employers must make a decision –
- Lay off employees and do more with less
- Cut back on employee hours but add more so that the total amount of employees is equal to the lower minimum wage level full time workers. For example, today I might employ 10 people that work 40 hours a week. If the wage increases, I might employ 20 people to get the same work done, but instead of them working 40 hours each I might keep their hours somewhere between 15 and 20 hours thus keeping my labor costs equal to the pre minimum wage increase level but now I have 20 people.SO I created more jobs, but instead of rewarding people for their work, I am barely getting by and so are the employees because although ten more have work, ten lost hours and thus lost half their income, forcing double or triple jobs to maintain the same income pre raise.
- Automate – You are seeing fast food restaurants do in this. Less and less people are at the front counter, having you order yourself, and they just give you your food. This cuts back on needed workers and saves money, but now you have more people losing jobs or working halved or quartered hours and now it is harder to make money for the employee.
- Recently Massachusetts has increased their minimum wage just to $10 an hour. Since that has happened, they have been losing, according to their State Comptroller, on average 10,000 jobs a month in the past 18 months since the increase. Wal Mart, has announced the closing of their two Sam’s Clubs in the state along with other companies moving and leaving the state for cheaper labor. The concerns here are labor costs are increasing thus to be able to compete companies have to cut costs or raise prices.
- Prices increase – When costs increase, prices must have to go up. When this happens then the price increase is steeper than inflation, and thus now the gap in wages goes up as skilled workers demand more money to survive in the world in raises and in demand for their skills pushes their wages higher and thus a steeper increase in the pricing of products. Now the minimum wage worker is less able to buy the goods they want now than they were before the income increase and now they feel they are falling behind, they are.
- Taxes – Increasing the minimum wage might possibly put people into a higher tax bracket or force them to pay more taxes than they were previously. In some cases, it might disqualify them food stamp programs and other welfare assistance. While, as a taxpayer this sounds great, think about it a little more globally. The food stamp program and childcare assistance is meant to help people work and contribute to society. But by giving them more income and not moving them into a better job, their kids might go hungrier than they did before and they may have less money because more is going to the government and from there.
Rodney Mogen, is the president of solveurpuzzles, a business focused company. Solve ur puzzles helps three groups: Small Businesses, Financial Advisors/Agents (fixed business only), and Local Government Entities. Rodney is also a small business coach focused on developing strategies for small business owners and helping them develop their own strategy and ideas to grow, sell, develop the way they want. He is focused on creating proper strategies for Advisors and business owners to assist them in their day to day duties by solving their puzzles.