In the United States of America, people find success and prosperity through the american dream. The way many people begin their search for the american dream is through a low paying job in order to gain work experience as well as skill. In order to ensure their is fair payment by employers to their workers, a federal minimum wage was first set in 1938 which is implemented by the United States labor law. The wage is set in place to ensure employees will be paid fairly for their job no matter their background or education. Right now there is a nationwide push to get the minimum wage increased to $15 per hour over the next few year and hear it Massachusetts a bill was passed to do just that. Although steadily raising the minimum wage so that lower wage workers can make more money seems like a good plan, the impact of these increases could hurt the economy nationwide.
After years of increasing the minimum wage nationwide, analyst are able to see how much the change negatively affects the United States economy in relations to job availability and the standard of living. Increasing the minimum wage, even to $15 per hour, would decrease the amount of available jobs, take jobs away from those who need them most and effect everyone in the United States while infringing on a constitutional right.
The reason that increasing the minimum wage is counter productive is that it would take away jobs once available in the economy. The first lesson in economics is the law of supply and demand which is when the price of a good goes up, consumers tend to buy less of that product since they may not be able to afford it or may not want to buy it at the increased cost. For example, if a coffee shop were to increase the price of their lattes’, one could expect consumers to buy fewer of them since they are more expensive than before and they cannot afford to pay for them. This law of demand relationship also impacts the market for low skilled workers and lower wage positions. When the minimum wage is increased, it costs the employer more for each worker which means they are not as affordable as they previously were. The previously mentioned coffee shop won’t keep their workers employed at $15 per hour if each workers only result in $7.25 in added revenue. If the shop did decide to keep these workers over the course of a year, they would lose nearly $15,500 (1).
With this knowledge, the coffee shop would decide to eliminate that position completely at that wage. History shows that employers will respond to wage hikes in this fashion. According to The National Bureau of Economic Research and a study done by economist Jeffrey Clemens and Michael Wither in 2014, they found that in late 2000s due to a nationwide minimum wage increase of around 30% the employment-to-population ratio dropped 0.7 percentage points which is nearly a loss of 1.4 million jobs (2). The people who suffered these job losses were mostly those who needed that job the most. This brings forth the next reason why the minimum wage increases is not as great as it seems; the minimum wage unfairly hurts marginalized groups and those we are trying to help.
When the minimum wage rises and employers need to cut workers, those that are perceived to be the least productive are those that were hired last and fired first. The job losses are usually endured by the inner city teen from a poor school district or the immigrant with substandard english. They are most likely let go before the suburban american teen from the excellent school district and background. Therefore those at a greater disadvantage suffer most from job losses. This goes in tandem with the fact that raising the minimum wage causes more competition for jobs due to the increased pay. The coffee shop that once paid $10 per hour draws more job inquiries when it pays $15 per hour.
These applicants will include retirees and people with higher education who reenter the workforce only because of the higher wage. Since most of these workers tend to have more skills and experience through earlier jobs, they push out immigrants and those with disadvantaged backgrounds who are likely more desperate for the jobs and are certainly more desperate to gain job experience required to move up in their field. Yet some say that the increase to $15 per hour is so insignificant that it does not impact the United States economy and will give more money to those that need a jump start in life.
The minimum wage is set in place to create entry level jobs for the workforce for workers to gain experience and skill required to move up in the profession. Some believe that the minimum wage is there to create a standard of living for those who need to support a family but the reality is that the minimum wage barely makes ends meet when the worker is supporting more than themselves. Over half of the 3.3% of the population that earns minimum wage or below is under the age of 24 in the United States. Those in that small percentage are mainly teenagers who are working part time to gain disposable income while learning key lessons in responsibility and how to gain experience. Although, however small that number may be there are still families trying to sustain a standard of living on the minimum wage and cannot be forgotten.
Unfortunately, due to inflation in the market, when the minimum wage is increased and the price of goods rises the worker’s net income is increased by an insignificant amount. One study conducted by the state legislature in Oregon and published in the Oregonian shows that when Oregon raised the minimum wage from $9.25 to $15.10 the workers earning minimum wage would result in only a net gain of only $49 per month (4). The only way to truly help those struggling to support a family is through education and training programs tailored to them to give them the experience and skill needed to earn a wage higher than what they are currently at.
When the minimum wage is increased, some believe that the new money into the economy will make sales rise since more consumers will have available funds to spend. It would also appear that those with low experience or skill can apply for these jobs in order to make a living a support their family since it will be paying more than it was in the past. Unfortunately this is not the case in the free market of the United States economy. When a business owner is forced to pay more to keep workers employed, they will simply pass on the burden to the consumers by increasing prices. If the coffee shop is forced to pay $15 per hour as opposed to $10 per hour and cannot afford to fire their workers to cover the cost, they will instead increase the price of their product to pay for their losses in revenue.
Now those that were earning higher wages than before will be forced to pay more for their products and even those that are earning minimum wage are consumers in the economy who will also feel the effects of rising prices. This effectively nullifies the increased wage as it is now more expensive to sustain a standard of living. The increased prices will not only hurt consumers but also small businesses that cannot increase their prices due to risk of losing business. As mentioned before, if the coffee shop that raised the price of their lattes is a local business, consumers will not buy the coffee at the higher price because it is not a necessary commodity. Smaller revenue combined with increased worker wages will effectively drive out small businesses in the nation that cannot sustain this loss over the short term.
Another reason that minimum wage hikes are not needed is because they are not necessary to give deserving workers higher wages when the free market already pays above the minimum wage. Nearly 96.7% of workers in the United States earn wages higher than minimum wage which shows that employers don’t just pay the minimum that are legally required of them (3).
Employers respond to the value each employee adds to their business because talented employees are what makes their company successful. For employers to hire new employees, it can be very expensive and time consuming to bring them onboard and businesses don’t want to lose their best talent to their competing brands. Therefore, employers pay their workers above the minimum wage voluntarily to create an incentive to work harder, gain experience and to stay with their company. When the government imposes a wage hike, some of the least experienced will not only lose their current jobs but it will be incredibly harder for them to find new jobs due to the increased demand for experienced workers.
When the minimum wage is increased, it puts a burden on business to raise their prices to cover their loses. This then pulls the buying power away from the majority of americans and force them to spend less on commodities which can significantly bring down the economy of the nation. The wage hike also pushes out workers who are in need of a job such as immigrants and those from disadvantaged backgrounds due to the increased need for skilled workers such as retirees and those with higher education. In essence, the minimum wage cuts off the first step of the employment staircase. That first, lowest paying step that provides the skills and experience workers need to reach the next step and to continue climbing their way to a better life.
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