An Increasing Minimum Wage Hurts the Economy in the Long Run
In economics, minimum wage is illustrated as a “binding price ceiling” which represents a price control typically set by the government. This price control sets a limit on the legal hourly wage that an employer can pay an employee. When talking about wages, binding price ceilings are important to the employee because it guarantees them a definite minimum wage regardless of their productivity at work.
The first federal minimum wage was passed into American legislation in 1938 and it was set at 25 cents per hour. With adjustment to inflation, an hourly wage of 25 cents today would be worth $4.44 (according to the BLS CPI Inflation Calculator). The current federal minimum wage is $7.25 per hour. In some states such as Kentucky and Oklahoma this federal minimum wage is a fair price to put on labor. In states such as California and New York this federal minimum wage is impossible to survive on, which is why states have the power to control their own minimum wage. For example the current California minimum wage is $11.00 per hour, nearly a 52% increase from the federal minimum wage. California is on track to double the federal minimum wage by 2022 and this might raise some red flags for the economy.
A rising minimum wage produces more negatives than positives. Below you will see the major pros and cons:
- Higher wages lead to more spending/ consumption which can help economic growth
- Guaranteed Inflation, or an increase of prices
- A rise in unemployment
- Small businesses shutting down
- An increase in poverty, due to the cutting of employee hours
- Youth unemployment would reach record highs
- Robots and machines would replace human labor
While these are just the few of many pros and cons of an increasing minimum wage, one does not need to be an expert analyst to realize the truth behind the impact this would have. Unfortunately for Democratic California, the lawmakers of the state and ignorant majority of the people, agreed to raise the wage to $15 per hour by 2022. As a result California has prematurely seen the impact this increase is having.
Before we dive into the details we must first understand that a small business is defined as a privately owned corporation, partnership, or sole proprietorship that has less revenue than larger businesses. The number of employees, number of locations, or size of the buildings do not determine the size of the business. According to the SBA (a government administration) at a national level, small businesses are responsible for 55% of all jobs within the US, along with 28 million of these small businesses involved in 54% of all sales within the US. Small businesses play a major role in the US economy and imposing laws that directly affect their ability to run efficiently would be beyond idiotic, but it doesn’t surprise me that the Democratic Party is responsible for the increasing minimum wage in California.
Houman Salem is the owner of ARGYLEHaus of Apparel which is a small clothing business located in southern California. This business employs 25 workers. In an interview on YouTube (click here to watch the interview) Salem discusses his struggles with the recent California legislation on minimum wage and what he plans to do in response to it. Salem would prefer to stay in southern California because that is where his family, friends, and roots are located. Unfortunately for him he has decided on moving his business to Las Vegas Nevada to avoid going out of business. By 2022 Nevada’s minimum wage will be $11.50 per hour which is a tremendous amount of saving compared to California’s $15 per hour. The decision to relocate the business may affect Salem’s employees, especially if their wages do not meet the cost of moving. This may result in the unemployment of Salem’s workers. Salem truly cares about his employees stating in the video “It’s not the issue of not wanting to pay people more money. I wouldn’t be where I am today if not for my workers. In order for me to pay my workers $15 an hour, that shuts me and a lot of people down. Or it tremendously increases my prices in a time in which customers are always sensitive about prices.” Salem claims that if he were to stay in California and keep all of his employees while paying them $15 per hour, he would lose $200,000 annually. For larger businesses $200,000 doesn’t have an impact, but for a small business like Salem’s, every dollar counts.
The people of California tend to argue that the current minimum wage is not enough to live off of. Jobs that pay minimum wage are low skilled jobs, which means that the job tasks aren’t relatively difficult. A minimum wage job such as a McDonald’s cashier is not meant to support a family of four. Unfortunately our society has seen a lot of adults take the jobs originally intended for high schoolers and then turn around and complain about the wage. An increase in minimum wage is not the solution to satisfying the needs of a struggling employee, in fact it is the complete opposite of a solution. Raising the minimum wage would lead to that specific employee experiencing higher prices, less hours, and potential unemployment in the future. When people complain about the minimum wage it acts as a perfect example of “be careful what you wish for.” In today’s society, people need more basic lessons on economics to truly understand the impacts of what they stand for. Majority of the people who push for $15 per hour have never read an article like this before. These selfish leftists only stand for their personal needs without thinking about the consequences.
With a higher minimum wage some small businesses will be forced to let employees go, therefore increasing the unemployment rate. To scale it down to a more simplistic model, if I were an employer who employs three employees and I have $30 dollars to pay each of them for one hour of work, I am going to give them $10 each. Now if the government were to come in and tell me that I need to pay them $15 dollars each, I would be losing money by paying three employees $15 each. As a result, to avoid a loss, I would have to let one worker go so I could use my original $30 to pay two employees $15 per hour each.
More specifically, the youth unemployment rate would increase tremendously with an increase in minimum wage. This is because if an employer must pay a higher wage to a worker, they are going to want someone who is more experienced, mature, and dedicated to the job. Unfortunately for teenagers in California, they might find it tough to land a high school job in 2022. Since teenagers play sports, attend school, and lack the qualities of a mature adult, minimum wage jobs are going to prefer older applicants.