Why Minimum Wage Increases Are Good, Just Not Now

On July 24th the federal minimum wage is set to increase from $6.55 to $7.25 per hour. 29 states will be directly affected by the hike as their current minimum wage is lower the the new federal guidelines. The other 21 states already have a minimum wage that equals or exceeds $7.25 per hour. Minimum wage rates had been unchanged from 1997-2007 at $5.15 per hour. Rates have risen from $5.15 per hour in 2007 to their current level over the past 3 years.m

Minimum wage rate increases are going to hit certain sectors particularly hard. According to the Wall Street Journal, “The industries that rely most on minimum-wage workers include fast food restaurants, small-scale independent retail stores, day care establishments and hotels.” In the UK,”The sectors offering the highest number of minimum wage jobs were cleaning (26%), hairdressing (24%), hospitality (21%), textiles (9%), social care (8%) and retail (8%).” Those most affected by the increase are teens, young adults and less skilled employees.

I have spent the last few weeks trying to nail down my position on raising the minimum wage.

On the one hand raising the minimum wage level will give employees more money in their pockets. Employees can use the 10% hike to purchase needed goods, services and pay bills. The wage increase may also give a boost to the sluggish economy. Employees with more money have more money to spend. This can benefit businesses at a time when businesses are struggling to remain profitable. Another benefit is higher worker productivity. Higher wages are directly proportional to higher productivity, A happy employee is a more productive employee. The biggest beneficiaries of wage increases are existing employees.

Conversely, the minimum wage increase will hurt individuals seeking employment in lower level jobs the most. Companies are cutting costs wherever possible to remain afloat during these difficult economic times. Companies will not look to hire new employees since they have to pay higher wages to existing employees. Businesses that have pricing power will seek to pass rising wage costs along to the already cash strapped consumer. Consumers will have to pay more for goods and services at a time when money is already tight. Industries that will be affected the most are customer service oriented industries like fast food restauramts, movie theaters and retail sales. This means paying more for a movie ticket, cheeseburger or groceries.

I think that raising the minimum wage is a great idea but that this is the wrong economic environment to do so. At a time when unemployment is headed over 10% and payrolls are being cut; this is not a good idea. This will only further weaken the job market and prolong any chance of an economic recovery. Congress should freeze the increased minimum wage until the economy stabilizes. When the minimum wage increase was passed in 2007, the American economy was booming and all was well. But in these perilous economic times an increase in the minimum wage may hinder a recovery in the job market and hurt job seekers searching for gainful employment.

Comments

[whidbey:]

Sort of obvious is it not? The classical reservations are that Min Wage decreases the jobs offered, but even that has been disputed by some academic studies. Longer run, they say, the net decrease in jobs is not noticeable (some achievement in a market of unemployed). What they can not say is what might have happened if the businessman had allocated the incremental wage payment to other things. It might increase business and in the long run increased jobs offered.

Small matter! In the world of politics, it the intent, not the results.

Jul 13 04:11 PM

[Tony Petroski:]

I think the minimum wage should be tied to the wages paid to the average attorney in any city. That would allow for regional differences and would not require a one-size-fits-all approach. The minimum wage for Texans could be $100/hour. The minimum wage for New Yorkers could be $200/hour. Think of the economic boom that will unleash!

Jul 13 05:28 PM

[reveigel@ms...:]

A minimum wage is bad at all times. Minimum wage should be zero. It should be up to the employer and the individual to agree on a wage. A minimum wage is nothing more than affirmative action. It attempts to level the playing field for all, even if all are not level. Having been an employer years ago, some excellent employees should have received much more than others. In fact, some should have been paying me as they learned how to work, which was foreign to them. It also has another negative. It encourages some young people, not doing well in school, to drop out prior to graduation. Why? Forty hours times minimum wage (let's say $6.50/hour) or $260/week looks much better than finishing school. If the minimum was zero he or she just might think school is better than nothing. Many of you may not like this approach, but it is better than what we have now.

Jul 13 05:50 PM

[RoadtoSerfdom:]

I manage a restaurant. We have staffed fewer and fewer min wage employees over the last few rate increases. Rather than undergo another round of payroll increases, we "promoted" some of our hostesses and bussers to waiters and waitresses that are only paid $2.13 an hour plus tips. We "downsized" the rest. Many of our distributors announced they would be increasing their prices to offset their increased payroll, so we also raised our prices.

"Yo quiero green shoots..."
Minimum Wage $3.35/hr Taco Bell taco $0.29
Minimum Wage $6.65/hr Taco Bell taco $0.89

If everybody got $100/hr we'd all be rich, right?

Jul 13 08:50 PM

[John Polomny:]

I am suprised that Mr. Riddix doe not know that the minimum wage dispoportionaily hurts lower skilled workers and African Americans. The arbitary raising of wages by the state does not come with a consumate increase in productivity. Therefore if the employee is not productive at hi/her new wage then the business will terminate him or not hire him to begin with. Henry Hazlitt, who lived during the lst depression wrote an excellent book called "Economics in One Lesson" which dispels wive tales like minimum wage laws, the broken window fallcy, and that wars create wealth.

Whidbey: Please link to the academic studies you are referring.

Jul 13 11:26 PM

[Al-USA:]

Actually, minimum wage disproportionately hurts the capitalist that has to pay for it, out of his profits. Accept lower profits, and the problem is solved. The problem with lower profits however, is the built-in inflation of our fractional reserve banking system. Therein lies the root of all capialist "EVIL" and the scramble for ever increasing profits, at the expense of labor. Just a thought.

Jul 14 12:21 AM

[joeflynn:]

Increasing the minimum wage is a mistake. America's competitors in China and India pay their workers one or two bucks a day and a bowel of rice. American workers are no more valuable than the Indian or Chinese worker that is doing work out-sourced out of America. Minimum wages is a tax on consumers here and if we could out-source fast food production to China we would do it in a heartbeat.

Jul 14 01:22 AM

[Alan Young:]

The economic effect of channeling marginally more money to the lowest-paid workers is very healthy for the entire economy, as the author correctly describes. The cost to the consumer is negligible, because wages are only a portion of labor costs (there are also benefits, insurance, training costs, etc), and labor, in most cases is only a small proportion of retail costs (vs. overhead, cost of goods sold, etc)

It's true that higher wages will slow job creation; but employers (SOME employers I should say) are *always* looking to reduce labor costs, even if it means outsourcing the work to Bangladesh, or hiring trained monkeys. We can't join the race to the bottom, or America will start looking like Haiti. Already, business owners have multiplied their economic distance from common workers something like 8-fold (800%) in the last 50 years. Giving back 10% of that is not going to be as painful as letting the trend continue unabated.

Anyone who has tried to feed a family on the pathetic minimum wage of the last 15 years or so knows that it is ruinous to a democratic social order. Shame on those who don't care about this.

Jul 14 03:23 AM

[Wisdom vs. ...:]

People are "happiest" when they are productive. An hour of a person's time is only worth what he can contribute to the product; you cannot change that fact, no matter how you "feel" about it. We have a 50+ year history of study of the minimum wage to study, and in fact it has never benefited anyone. People who gain skills get raises and promotions and make more money; people who never get a job in the first place stay on the government dole (transgenerationally since the Great Society began), a parasite on our total economic utility. You have no right tell me what I will work for, and no right to tell me what I will pay. That is a perfect example of fascism. The minimum wage law destroys of jobs and capital by eliminating marginal businesses; does no one understand the margin? Fight for the freedom to earn one's livelihood, fight against the minimum wage.

Jul 14 10:22 AM