in response to the problem of helping low-wage employees provide for themselves and their families, federal lawmakers and labor activists are proposing minimum wage hikes. The Senate may soon vote on Senator Edward Kennedy's, D-Mass., proposal to raise the federal minimum wage to $7.25 an hour, and Senate and House Democrats have vowed to pursue the issue through November. And with election season approaching, activists around the country are promoting ballot initiatives to raise the minimum wage in half a dozen states.
But the increased costs associated with a wage hike saddles employers with a dilemma. Wage hikes frequently force employers to cut jobs and scale back hours in order to maintain profits — and thus stay in business. So who are they most likely to consider a liability: a part-time college or high school student, or an illiterate employee who may in fact need the job more than anyone else?
Indeed, 60 years of economic research, including recent studies, has shown that low-wage, low-skilled employees are the most likely to lose their jobs after a mandated wage hike.
The making of public policy is a strange enterprise. Where else are means and ends so poorly harmonized? If a woman's foot were broken, the response would not be to buy her a better brand of tennis shoe, but to see that she receives medical care.
If a man does not know how to drive, this does not mean that he needs a better car. It means he needs to take Driver's Ed classes.
So when confronted with the problem of functionally illiterate and unskilled employees seeking to enter the job market, why do we assume that raising the minimum wage is a solution?
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The problem with the minimum wage debate is that it is an emotional one. Everyone, generally, likes to think they're entitled to more and they're insulted when you suggest that maybe they aren't. So when you oppose minimum wage, people think you're making a comment about them personally. Or that you don't care about helping low wage workers.
The truth of the matter is that raising the minimum wage doesn't help low-wage workers at all. It just ensures that fewer of them get jobs.
Workers who make minimum wage are generally those who are of the lowest value to employers, either because the minimum wage workers are entry level and don't have a lot of experience or are uneducated and unskilled. If you increase the cost of these minimum wage workers without increasing their value to employers all that's going to result is having more of these minimum wage workers on unemployment.
In a free market, if you are going to raise the cost of something (in this instance minimum wage workers) then you must also raise it's value. Raising the minimum wage doesn't make minimum wage workers more valuable, it makes them more expensive and, ultimately, more expendable.
Think of it this way. Saying you're thinking about purchasing internet service and there are two packages available. One gives you 2.5mbps speed, the other gives you 5mbps. The cost of the first is $10/month, the cost of the second is $20/month. You choose the first package because all you do is some email and light internet browsing and 2.5mbps is fine for what you need. A few months later, however, the ISP raises the cost of the 2.5mbps service to $17.50/month without changing the cost of the 5mbps service. Are you still going to stay with the slower service for more money or will you consider upgrading for just a few dollars more?
Some might stay where they're at, but a lot of people will also upgrade. This is exactly what will happen when/if minimum wage goes up. Some employers might stay with their now-more-expensive minimum wage workers, but others will probably "upgrade" to an employee with a little more experience who doesn't make all that much more. Or maybe an employer will replace two minimum wage workers with one more educated, more skilled worker.
Regardless, the point is that minimum wage does a lot to hinder business and not a lot to help workers.
Sadly, not too many people understand this.