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Why raising the minimum wage is not a good idea

Posted by Chance on January 14, 2016

Some politicians and members of the general populace think that the minimum wage can be raised without any harmful side effects.  While I don’t want anyone to be poor, the idea of a minimum wage is just bad, philosophically, and raising it will ultimately be ineffective.

I should note that when it comes to economic policy, there always seems to be evidence on both sides.  So, I think it is important to look at human nature as well.  What do we understand about human behavior?

First of all, let’s talk about overall unemployment.  there is the whole law of supply and demand, which basically, among many things, states that when things are more expensive, demand goes down.   Many studies supposedly show that there is no appreciable effect on employment over time, but the problem with these studies is that they are done over time, where other factors go into employment as well.  Cato has done a study that looks at how the minimum wage affects employment by looking at multiple countries over the same time period.  But even without the studies, let’s use common sense.  When things are more expensive, fewer people buy them.  May not for slight increases; if an iPhone model increased by one dollar, it would doubtfully have any effect.  Double it, and it’s a different story. If minimum wage didn’t negatively affect employment, it would go against everything people understand about economics, and it would be the first time in history that something gained significantly in price and the exact same number of people purchased something as before.

But aren’t employees indispensable?  Not completely.  Ever see a self-checkout lane?  Companies need some employees, and machines/computers replace jobs anyway, but my increasing the minimum wage it becomes easier to make the tradeoff between human employee and a machine.

Secondly, a higher minimum wage hurts the poor by reducing their right to negotiate.  When you go to a grocery store, you make decisions on products based on some blend of quality and price.  You may go for the high quality toilet paper, but buy the cheap ketchup. But imagine if there was a law that required a minimum price for certain products?  You are used to paying two dollars for ketchup, but now the minimum price is four dollars.  You now have no reason to buy the lower quality ketchup. An absurd example, sure, but it’s analogous to raising the minimum wage.  People who have less experience and fewer job skills can bring something to the table by offering lower wages.  Intuition shows this to be true, and so do several studies.

Furthermore, a higher minimum wage increases the price of products, pretty much offsetting the effect of any wage increase.  I don’t have much to say about this other than, when operating costs increase, often the product will as well, unless the restaurant or grocery store owner or whoever wants to make less money.  It seems like more expensive products would offset a higher minimum wage.

In addition, raising the minimum wage would hurt workers already making that much.  If someone with some job skills already makes, say $15/hour, and the minimum wage is raised to that much, it automatically devalues what that person already makes.

Another point – if raising the minimum wage have any negative effects, why not raise it more? That is, if raising it to $15/hour is NOT harmful, why not raise it to $30.  Oh, because that would be too much, too expensive?  But $15 isn’t.  And you know this because…

This isn’t the only example of this type of issue that I oppose.  Raising the minimum wage would not directly affect me.  However, I could supposedly benefit from other proposals in the same vein, like mandatory paternity leave.  It’s the same idea – people deserve a certain something from the company they work for.  But what people get should be what two people agree to.  If I get hired by a company and they offer paternity leave as a benefit, great, but if no company is willing to offer that to me, but then maybe I’m not worth that.  Anything I expect beyond what any company is willing to pay me is a sense of entitlement.  Let’s say that I force companies to provide paternity leave via political means.   The thing is, my worth didn’t change.  Companies are not going to pay me the same salary, and then provide paternity leave just the same  (If I already worked for the company I wouldn’t expect a decrease in salary but fewer increases and/or less amount each increase).

Both of these are the same issue.  Things cost what they cost, and people’s labor is worth what it’s worth.  Someone cannot magically change that via political dictate.  When people try to politically get more than what they are worth in the market, something else makes up for it.

Again, there are always going to be studies showing this or that, and I even linked to some of them.  But I believe the way I do based on how I understand human behavior.  We make adjustments based on how much things cost us, and I’m arguing that business owners do the same.




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