Raising the minimum wage does more damage than good – this is economic fact. An overwhelming number of economists in this country and in Canada say that artificially raising wages reduces employment. Yet politicians, particularly those from the left, cannot understand that jacking up the price of labor induces less people to buy it. In this case, the employers are the buyers and the workers are the commodities.
Why might a well-intentioned politician support artificial hikes in wage rates? Perhaps, it’s sympathy. Millions of Americans live in poverty. Perhaps, the logic of this well-intentioned politician is that by raising the minimum wage (or even establishing one for that matter), he or she can reduce or even get rid of poverty in America.
Sorry, but this logic is wrong. If raising the minimum wage has any impact on poverty in America, it is incredibly slight because the number of people who work for minimum wage is incredibly small.
In fact, the U.S. Department of Labor reports: “According to current population survey estimates for 2004, some 73.9 million American workers were paid at hourly rates, representing 59.8 percent of all wage and salary workers. Of those paid by the hour, 520,000 were reported as earning exactly $5.15.”
There are several factors which lead to poverty (education levels, unusual circumstances, etc.), the least of which have to do with minimum wage rates. Wages are tied to productivity. The more productive you are, the higher your wages should be (and typically are). A well-intentioned politician should probably advocate legislation that promotes increasing the quality of education in America if he or she truly wants to fight against poverty.
If well-intentioned politicians understood the damage of artificial wage hikes, they would be less inclined to support legislation that seeks to do just that. Federally mandated minimum wages cause unemployment.
Disproportional amounts of people who are unemployed are low-skilled laborers. Further, inordinate amounts of minorities and teenagers are low-skilled laborers. In fact, according to the U.S. Department of Labor, only about two percent of workers over 25 years of age earn minimum wages. Moreover, artificial wage hikes typically hurt teenage black males the most because they tend to be low-skilled workers. So, the very people who minimum wage increases report to help are actually being hurt.
Thus, not only are minimum wage increases economically unsound, but they are also harmful to the groups whom they intend to assist. This begs the question: why support it? Let’s put it into perspective: There is an election year coming up and suddenly politicians (particularly Democrats) are pushing for increases in wage rates. Obviously, they are not doing this for low-wage workers. If they were really concerned for low wage workers, they would push for improved education to increase productivity.
A way to answer the question (to whom are the Democrats catering?) is to ask yourself: who benefits the most from wage hikes? The answer is quite simple: labor unions and the currently employed. By artificially raising wages, it ensures that particular groups will be shut out of the labor market completely. While it sounds funny, having the option to take lower wage rates actually helps low-skilled laborers because they can now compete against high skilled workers. Would you rather make $5 and be employed or having the possibility of making $7 but be unemployed?
Employers are not simply going to say: “Oh gosh, I should comply with federal standards, hire more workers and ensure the downfall of my company.” What they are going to do is try to lower the cost of labor by any means to guarantee profit. Am I saying this is right? I am in no position to make that call. What I am saying is that this is reality.
We can sit back and take moral positions on the ethics of capitalism if we want – it’s good fodder for a philosophy class. But people’s lives are at stake and if we truly want to help, we should promote legislation that is really effective, not insidious fa?ades like artificial wage hikes.