Increasing Minimum Wage for the Economy
Increasing the minimum wage may seem like an obvious decision for some; why wouldn’t we pay poverty-stricken entry level workers more livable wages? However, there can be grave consequences that result from such drastic economic changes that must be considered, especially when these consequences hurt the intended beneficiaries. The minimum wage should not be increased, as increasing it will have a variety of negative economic consequences for businesses and workers, and it will be a change that will cause more harm than good.
It is inevitable that massive job loss will occur as a result of a policy that increases the minimum wage. The first manner in which job loss will occur, is through automation. Automation will be adopted by businesses in order to compensate for the mandated higher wage. This is very well known in the fast-food industry, where computers replace employees that normally take orders (Wolfram).
How it works
Since businesses will be forced to hire workers at a price point that is determined by legislation, they will favor the use of technology in place of those workers. William Wascher of the Federal Reserve Board and David Neumark of the University of California, Irvine in the book Minimum Wages, said that they found a 1 to 2 percent reduction in low-skill employment for each 10 percent minimum wage increase (Rugy).
This study clearly shows the relationship between minimum wage and employment to be one that is inversely related, which is to say that increasing the minimum wage may decrease employment. This is harmful for the overall United States economy as lower employment rates stifle business growth and inputs into the economy. It also harms low skill workers themselves as they will be hired at lower rates, which goes against the main reason for raising the wage in the first place. In the political cartoon, there is an angry worker on the side who sees his content co-worker who now has a higher wage who says Look on the bright side, now I’m getting $15 an hour. The angry worker says What bright side, I just got laid off! (Branco).
This cartoon speaks to the concept of job loss and how businesses will execute measures to keep their profits, even if it means removing some employees. This also supports the idea of unemployment and how it will occur if the minimum wage were to be increased. On the other hand, the political cartoon by Wolverton depicts a rich businessman sitting on top of suffocating workers with an abundance of cash with him. It explicitly states Immorally low minimum wage and Record high profits.
The implication is that greedy corporations with extremely high profits are keeping their cash piles, letting workers under them suffer though they have the capability of providing for these workers in the form of higher wages. Though this is true for a select few corporations with astronomic profits, there is a major flaw with this line of argument.
The main issue is that it fails to account for the businesses in America that are not large corporations, that do not have these profits, and will still have to abide by a minimum wage increase. A significant amount of businesses in America struggle to make ends meet, and most businesses are not remotely close to the one depicted by Wolverton. These small businesses will be hurt by the legislation, and so will their workers. On a whole, businesses of varying sizes and capabilities will most likely look towards laying off many workers after a minimum wage increase, as they will be unable to cope with the financial burden of the policy. Therefore, the minimum wage should not be increased in the United States.
A minimum wage increase will also not be effective as it will distribute economic benefits to some portions of the population and not others. Executives and those at the top of businesses will keep their jobs while low-skill and entry level jobs will suffer the blow of minimum wage legislation (Wolfram).
As employers receive increased incentives to replace low skill labor, people that normally occupy those jobs will suffer, which is the opposite of what the legislation intends to do. However, people that do not need this legislation will be unaffected, showing that the impact is uneven across scales of employment.
The reason why uneven impact is a concern is because it makes a minimum wage change inefficient and ineffective in some areas, as well as immoral. If increasing the minimum wage benefits one portion of the population but harms another portion of the population, it is not an advantageous measure for the people of the United States as a whole.
The most beneficial measures that the government can pass are those that equally benefit the citizens, or at least equally benefit those that are the target of the policy. In the minimum wage case, neither of these hold to be true if it is increased. Additionally, people in difficult socioeconomic circumstances will have a much harder time getting jobs after a wage increase, while others that are more affluent will be unaffected (Wolfram).
Those that have better support systems and economic situations will not have to suffer as much as those who rely on the entry level jobs that will be lost after the wage increases. This is evidence of disproportionate effect, which is harmful, and again ineffective. It is also true that different states and cities in the United States would also be affected differently by a universal wage increase. A $15 minimum wage would raise prices in Georgetown, but in Congress Heights, it would shutter shops altogether. Georgetown is in Ward 2, where the unemployment rate is below 5 percent. Congress Heights is part of Ward 8, where unemployment is 13.4 percent (Rugy).
The fact that different cities are affected disproportionately is more evidence that the wage increase is inefficient, ineffective and will only help some people in the U.S while taking away from others. One supporter of increased minimum wage, Chris Lu, stated that as the Deputy Secretary of Labor he saw how higher wages made workers much happier and more productive.
Unfortunately, this is almost entirely anecdotal, and is not statistically significant to justify a wage increase. Additionally, it is more important to point out that only some of the workers will be happy: those that keep their jobs. The rest of the workers will have lost their job by the time the increase is fully implemented. This is supported by statistics and research done by credible professors (Wolverton and Rugy).
Ultimately, a minimum wage increase will have adverse effects as it will hold different impacts for different people, regions, and areas of the nation. Increasing the minimum wage will also cause a full scale domino effect of supply and demand economics on all levels. The first stage of this domino effect begins with the cost of producing goods increasing after the wage is increased (Branco and Wolfram).
The cost of products will increase because low skill labor will be valued at a higher wage, which will force businesses to account for it in another area, primarily prices of goods sold. Next, fewer products will be sold after the price of the products increases. Using basic economic principles, it is safe to conclude that as the prices of products increases, fewer items will be sold as the price will deter consumers. Fewer workers will be hired from the decreased profits of the businesses or to prevent a loss of profits from the previous effects of the wage increase (Wolfram).
Fewer workers being hired is the final stage of the domino effect which shows that the ultimate effect of the policy comes full circle back to the worker and affects them negatively. The takeaway from this complicated cause and effect series is that there are several points of the economy that suffer from the minimum wage increase. Workers, consumers, businesses, and the entire economy will be negatively affected in some way if the wage is increased.
Robert Reich who supports minimum wage increases states: My guess is Seattle’s businesses will adapt without any net loss of employment. Seattle’s employers will also have more employees to choose from as the $15 an hour minimum attracts into the labor force some people who otherwise haven’t been interested. If Reich’s guess is correct, the people attracted into the force will simply cancel out those that are forced out by companies.
Economically, this would not be logical from the business perspective as companies will be forced to lay off workers from the wage increase as explained previously. Thus, these same businesses will not take in more people regardless of whether there is interest for the jobs as they cannot financially afford it. Reich only makes a guess, like many others, regarding the effects of a minimum wage increase. When analyzing the totality of economic effects, it is clear that increasing the minimum wage causes a host of economic issues, one leading to the next, and overall only causing more trouble for the minimum wage worker.
The overwhelming economic evidence against a minimum wage increase supports the idea that the issue is much more complicated than simply agreeing to pay more to entry level workers. If the consequences of the legislation are harmful, then it should not be passed, regardless of how morally appealing it is to politicians or the public.
A higher minimum wage sounds like a proposal that should be universally accepted, as most would agree that hard workers at the bottom of the economic ladder deserve a wage increase to help them financially. However, the consequences of increasing the wage are evident, and they will inevitably only hurt the average minimum wage worker. Ultimately, increasing the minimum wage is much more likely to negatively impact entry level workers and businesses as well as the United States economy, and it should not be raised.