Raising and Crushing Incomes Through Minimum Wage

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This essay is about how increasing the minimum wage will inevitably lead to an increase in unemployment.

Submitted: April 18, 2017

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Submitted: April 18, 2017

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Raising and Crushing Incomes Through Minimum Wage

Almost everyone wants more money. Money is the driving force for a lot of the things people do. It urges them to study, earn degrees, and work long, tireless hours, oftentimes at jobs they don’t even enjoy. Families need it to pay for food, clothes, cars, houses, and the other essentials of life. It’s not a bad thing, though. It’s just a part of life, and if it weren’t for money society wouldn’t thrive. Why not? Because people would have no incentive to serve the people around them. Why would a student spend forty hours a week at McDonald’s flipping burgers if it weren’t for his periodic paycheck? Why would a college professor spend hours and hours every day grading assignments if he weren’t paid for doing it? They wouldn’t, and that’s why money actually benefits a society. It provides a push for every student and worker to study and work their hardest, which in turn helps everyone else. Minimum wage is the least amount of money an employee can make in an hour and recently, many of the states have been pushing to raise the minimum wage. As of now, 29 states have a minimum wage above the federal level of $7.25 dollars per hour. Many people assume that raising the minimum wage will merely increase the Jacksons found in every workers’ wallet. However, although raising the minimum wage will benefit some people, it will hurt even more. Because of the “invisible hand,” the idea that employers and employees alike all pursue selfish motives to make more money, minimum wage leads to unemployment and rising prices. It leads to thousands of workers being laid off because their bosses can’t afford to pay them anything anymore. It leads to poor college students floundering to make ends meet, praying that they will be able to find a job to pay for tuition and rent. Data and experience shows that minimum wage doesn’t help a society: it hinders it.

Creating a minimum wage in the first place is no small matter. Minimum wage was first introduced in the United States in the 1830s, during the Great Depression. Admittedly, it served its purpose, and helped many low class workers make enough money to support their families. However, since then, and now that the economy has stabilized, it doesn’t really have the positive effect it once had. In fact, although its purpose is to continue helping low income workers, it does not actually result in a decrease in poverty. In 2004, Ontario, Canada increased its minimum wage for the first time in nine years. At the same time, the government planned on increasing it repeatedly through the year 2010. According to a study done by the Department of Economics, though this increase in minimum wage was meant to help workers of low incomes, “the vast majority of such workers would likely not belong to poor households.” Evidence showed, in fact, that only 10.66 percent of poor households received higher wages after the government increased the minimum wage. (Canadian Public Policy) Instead of helping poor families increase their income, most of the income went to families who don’t necessarily need more money. The majority of low income families weren’t even benefited in any way.

Raising the minimum wage often results in low skilled workers, specifically high school and college students, finding it difficult or even impossible to get employed. As I was preparing this issues paper, I started talking to one of my friends about the minimum wage and asked for her opinion on whether she thought minimum wage would help people earn more money. To my surprise, my question got her fired up. She expressed to me her concern that where she is from, Arizona, the state government is likely going to raise the minimum wage to $15.00 dollars an hour, and that consequently, she doesn’t have much hope of finding a job to pay for her tuition and rent during the summer after she returns home. This is a natural concern, especially for people (my friend is a great example) who have not received much education and just want to make ends meet, either just for themselves or for their families too. American economist David Neumark, a professor from the University of California and director of the Economic Self-Sufficiency Policy Research Institute, has researched extensively the effects of minimum wage. (Wikipedia) From his research he concluded that increasing the minimum wage causes employers to lay off their low skilled employees, spend more money on their equipment, and raise the prices of their products and services, resulting in less demand for their products. (Minimum Wages on Employment) In a way, a minimum wage gives employers the opportunity to be more “picky” about the workers they hire. For example, suppose in the hypothetical city of Greendough, the minimum wage for waiters is $10.00, and the government decides to raise it to $15.00 dollars instead. Before, the restaurant manager hired ten waiters, meaning he paid them all $100.00 dollars an hour. After the minimum wage increase, he fired five of his least skilled waiters, kept five of them, and hired one more. In the end, he was paying them all $90.00 an hour, less than what he was paying before. What is the point of this example? The point is, raising the minimum wage isn’t good for low skilled workers because people with higher skill levels often replace them because they can perform their jobs more efficiently for near the same price. The waiters the manager kept would have been the most professional, efficient, and hardworking of the ten. For them, the increase in minimum wage was a bonus. But for the other five workers, the minimum wage knocked them off their feet, and they had to look for employment elsewhere. Neumark goes on to say in his economic letter that minimum wage laws have “directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession” (The Effects of Minimum Wages on Employment, pg. 4). Also, he proposes that “minimum wage increase both the probability that poor families escape poverty and the probability that previously nonpoor families fall into poverty. The estimated increase in the number of nonpoor families that fall into poverty is larger than the increase in the number of poor families that escape poverty” (Economic inquiry). The problem here is that increasing minimum wage pulls some people up, but throws even more people, kicking and screaming, into the chasm of poverty. It is good for some people, but a nasty solution for the majority of people it is created to save. 

The “invisible hand,” an idea proposed by the famous economist Adam Smith, is definitely a factor to consider in regard to the effects of minimum wage because it influences employers and employees in the decisions they make. Adam Smith proposed that people, in general, only act according to their selfish motives. At first glance, this might seem a bit unfair. But in the end, as stated by Adams, society thrives as a result of selfishness. How can this be? As stated earlier, almost everyone wants more money. Most people are eager to increase the digits in their bank accounts. They want money to provide for themselves and their families, and to buy things they think will make them happy, such as new cars and big, beautiful houses. Some people receive the required education and become business managers, doctors, and even movie actors, all of which is done to earn money. At the same time, they are all contributing to society. People are willing to pay for products and services, hospital bills, and movie tickets. If it weren’t for these people, none of this would be available for the rest of society. Thus, society is benefitted because of an “invisible hand” that moves everyone to make decisions to further their own selfish wants and needs. According to Alistair Macleod’s Journal of Scottish Philosophy, “the social outcome [of] the pursuit of wealth by the individual members of a society is a certain distribution of the economic product…which provides even the poor…with the necessities of life.” The “invisible hand” is the reason employers fire their low skilled employees. They don’t want to pay their workers more than they must, and so they get rid of some of them. This isn’t a bad thing, however. If it weren’t for the minimum wage, employers would accept lower skilled workers. They would also be willing to accept more workers, at least until productivity was maximized. The point is, the minimum wage conflicts with the concept of the “invisible hand” and tries to restrain it from working its magic on society. In the end, it only hurts the people it aims to help.

John Boehner, Unites States Representative of Ohio, declared in response to President Obama’s appeal to Congress to raise the minimum wage, “…when you raise the price of employment, guess what happens? You get less of it. At the time when the American people are still asking the question, where are the jobs, why should we want to make it harder to small employers to hire people?” (Sickler). According to a recent study done in 2013, 14.4 percent of people in the U.S. have either given up on finding a job or are working part time when they would like to work full time. (Sickler) When the minimum wage is too high, there is more demand for jobs than there are jobs to fill, which is the main problem. The lower the minimum wage, the more jobs managers can afford to fill. Also, when the minimum wage is raised too much, managers spend more money on equipment than on their workers, saving money. McDonald’s, for example, has started coming out with self-serving kiosks, so people who order at the restaurant don’t even need to talk to a cashier. The kiosk is designed to save time on orders and make the ordering process more efficient.  However, one McDonald’s franchisee said, “With minimum wage for fast food workers potentially increasing to incredibly high levels, we are facing a crisis situation.” Another wrote, “The minimum wage issue is a major threat to the survival of the operator community.” Even Bennigan’s CEO Paul Mangiamele mentioned in an interview that these kiosks were just a natural response to “rising labor costs and calls for a higher minimum wage” (Business Insider). Not just McDonald’s, but many restaurants are beginning to use self-serving kiosks. Can people blame them, though? Of course not. If it costs too much money to pay employers, why not just make a machine that is more cost effective and does the job better?

Many people, even economists, believe that Congress should raise the minimum wage to reward low income workers performing their jobs well. Jerry Wurf is one of them. In the Congressional Digest, he paints CEOs of companies as greedy and selfish. Data signifies that “the canning industry increased its total volume of production by 74.4 per cent with an employment increase of only 15.1 per cent.” Thus, Wurf asserts that industries are having a lot of success, but that the extra money they are making is not making its way to the workers, implying that the workers “deserve” more money for their labor and contribution they are providing for industries. (Wurf) The fact remains, however, that government should not tamper with the minimum wage either way because it has been proven time and time again only to increase unemployment. Like everyone else, CEOs of companies are pursuing their own self-interests, as the “invisible hand” concept represents so well. Workers are no different. They selfishly argue that CEOs should share all their extra wealth with them. However, minimum wage is obviously not the best solution for doing so. Rather than effectively transferring money from the CEOs pockets to those of the workers, increases in the minimum wage make it harder for CEOs to increase production, causing them to lay off many of the workers minimum wage is meant to help.

On the other side of the spectrum, Matt Triggs wrote in the Congressional Digest about the reasons why Congress should stop raising the minimum wage. He uses the example of farmers to explain the increases in minimum wage would result specifically in increasing prices. He suggests that if the minimum wage were increased, so would the cost of all goods and services that the farmers need to buy in order to run their farms, as well as the products needed to tend the farm. Raising the minimum wage would “result in a reduction of employment in agriculture of both farm families and hired workers” (Triggs). Tim Worstall, a Forbes contributor, notes that when prices rise due to increases in the minimum wage, poor families suffer. For example, WalMart workers receive close to minimum wage, and so an increase in their wages leads to an increase in prices, too. Since the majority of WalMart shoppers come from poorer families, it is they who must pay the costs of the minimum wage. It is, in fact, like a tax on shoppers. Another point Worstall brings up is the fact that many of the minimum wage workers don’t even come from poor families: many of them are teenagers who come from successful households. They are the ones who reap the rewards of the higher minimum wage, whereas households who are struggling financially (and often shop at WalMart) must help pay the extra income that these teenagers receive. Worstall summarizes by saying, “’Just raising prices’ to deal with the minimum wage doesn’t actually work for us as an adjustment policy….We’re actually making the poor worse off by doing this” (Forbes).

In conclusion, minimum wage simply doesn’t play the role everyone wishes it would play. If employers were forced to keep each and every one of their workers and maintain their prices, maybe it would. Employers could just make all of their workers richer. But if this were the case, what would happen to the employers’ income? What would happen to the CEOs of companies? What would happen to inflation rates? CEOs would lose money, then employers would lose money, and inflation rates would increase drastically.  But the sad fact—and really there is nothing sad about it--remains that people naturally respond to circumstances that negatively affect their prosperity. No one can blame them, either. And no one can say that minimum wage makes everything worse off for everyone. That’s obviously not the case. In fact, minimum wage often benefits richer families, as shown previously. It’s ironic to think, however, that poor college students should have to pay the effects of minimum wage, rather than the rich members of society. People, and especially college students, can complain all they want: and they do complain. They can shout from the rooftops, and let the whole world know how unfair the income distribution is. But responding by fighting for an increase in minimum wage isn’t the best solution--isn’t even a good solution. It can be compared to someone banging his head against the wall to reduce a headache, when an aspirin and a good amount of water is a lot more helpful. What can aspirin and water be compared to in this case? People earn money based on their human capital, meaning that education, skills, and job experience are huge factors when it comes to household incomes. But increasing the minimum wage doesn’t increase a worker’s education, or skill level, or even job experience. It doesn’t make anyone more intelligent or thrifty. It does, however, make life harder for thousands of young people who need money to earn college tuition, so they can receive a degree. It makes life harder for young single mothers who are trying to work to provide for their small children. And it makes life harder for high school drop outs who have lost the chance they once had to gain an education, and are now fighting against all odds to make up for lost time and opportunities by working at the local Starbucks or Macy’s. What does society have against these workers, that causes them to fight for rises in minimum wage? Certainly, people don’t want to make their lives harder, but that is exactly what they are doing, even if they probably don’t know it. And maybe it is these same high school drop outs who want the minimum wage to increase, not knowing that they will probably be fired when their wish comes true. Either way, the truth is that poor families would actually have a higher chance of making their way out of poverty if minimum wage stopped increasing over the years. If it did stop increasing, it would naturally lead to more jobs to be filled, less people fired, and more peace of mind to the college students who know that they will be able to pay the rent statement at the end of the month, thanks to their jobs.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Works Cited Page

"David Neumark." Wikipedia. Wikimedia Foundation, 26 Mar. 2017. Web. 27 Mar. 2017.

Macleod, Alistair M. "Invisible Hand Arguments: Milton Friedman and Adam Smith." Journal of Scottish Philosophy, vol. 5, no. 2, 2007, pp. 103-117.

MASCELLA, ALLISON, SHAHZIA TEJA, and BRENNAN S. THOMPSON. "Minimum Wage Increases as an Anti-Poverty Policy in Ontario." Canadian Public Policy, vol. 35, no. 3, 2009, pp. 373-379.

Neumark, David, and William Wascher. "Do Minimum Wages Fight Poverty." Economic inquiry, vol. 40, no. 3, 2002, pp. 315-333.

NEUMARK, DAVID. "The Effects of Minimum Wages on Employment." FRBSF Economic Letter, vol. 2015, no. 37, 2015a, pp. 1-5.

Peterson, Hayley. "McDonald's shoots down fears it is planning to replace cashiers with kiosks." Business Insider. Business Insider, 06 Aug. 2015. Web. 27 Mar. 20

Sickler, Melvin M. "Should Congress Increase the Federal Minimum Wage and Index it to Inflation? (Cover Story)." Congressional Digest, vol. 92, no. 5, 2013, pp. 19-29.

Triggs, Matt. "Should Congress further Increase the Minimum Wage Level? CON." Congressional Digest, vol. 51, no. 4, 1972, pp. 121.

Worstall, Tim. "Price Rises To Cope With The Minimum Wage Make Things Worse, Not Better." Forbes. Forbes Magazine, 27 Apr. 2016. Web. 27 Mar. 2017.

Wurf, Jerry. "Should Congress further Increase the Minimum Wage Level? PRO." Congressional Digest, vol. 51, no. 4, 1972, pp. 122.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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