Should the Minimum Wage Be Abolished (i.e. Reduced to $0.00)?
Overview/BackgroundIn presidential and Congressional campaigns, the issue of raising the minimum wage workers is often brought up. Most Republicans and many Democrats oppose a rise in the minimum wage. Some economists believe it should be abolished altogether; in other words, businesses would be able to pay $1 or $7 per hour if they wanted, assuming they could find people to hire at the specified rate. This analysis examines the pros and cons of the economists' suggestion.
The vast majority of economists believe the minimum wage law costs
the economy thousands of jobs.
The most fundamental principle of economics is 'supply and demand'. In the case of labor, this means that the supply
of workers goes up as wage goes up, and the demand for workers by employers goes down as the wage goes up. For
example, imagine a janitorial job was advertised for hire. If the wage is $100 per hour, thousands of people would
want the job. If the wage was $1 per hour, you probably wouldn't find anyone to do it. Conversely, if the government
forced the employer to pay at least $7 per hour, the employer might decide not to hire a janitor at all, instead
opting to have other staff pick up the duties. Thus, a job would be lost because of the minimum wage. Another example
is restaurant employment. A manager might have $10,000 in her monthly budget to hire
bus persons. If the wage is set
at $7 per hour, the manager may only be able to hire 10 bus people instead of 15. Setting a mandated wage limit
disrupts market forces of supply and demand. Just because there is no minimum wage doesn't mean companies can pay
whatever they want. Would you work a dishwashing job that paid 25 cents per hour? Would anyone? If they raised the
wage to $4 per hour, they might be able to hire a high school student. Consider some highly skilled jobs such as
accountant, lawyer, and engineer. Do these people make $5.15 an hour? Obviously, the answer is no. Market factors
of supply and demand determine how many jobs are available and what each job would pay. In summary, as the minimum
wage goes up, the number of people employed goes down. When the minimum wage goes down, the number of people
employed goes up. Keep in mind: the minimum wage only applies if someone is employed.
Teenagers, workers in training, college students, interns, and part-time workers all have their options
and opportunities limited by the minimum wage.
Over 95 percent of minimum wage jobs are taken by the groups named above. You cannot make a living and support a
family on a minimum wage job. These jobs are typically positions requiring little or no training that can be filled by
almost anyone. Many students, part-timers, and other young workers are willing to take much less than minimum wage,
especially if it is a fun or educational job. We all know that having a paying job when you're young
such as discipline, hard work, and responsibility. It teaches young workers how to handle money and deal with other
people. Thus, as a society we want to maximize the number of young people that work, even if it's for small wages.
In fact, earning low wages provides extra motivation to go to college or acquire advanced job skills by some other
method. Raising the minimum wage to $7 or more will definitely help some people trying to support a family, but it
will hurt the group that holds almost all minimum wage positions. It will simply mean fewer low-skill jobs for
those that actually need them. However, in some cases, this downside
of the minimum wage can be minimized by applying a multiple-wage
structure, allowing a lower minimum wage if you fit into one of
these groups. In 2009, thanks in large part to a higher minimum
wage, brought the national teenage unemployment rate to record
A low-paying job remains an entry point for those with few marketable skills.
Almost no one wants to work a minimum wage job for the rest of their lives. We all want the higher paying and
more interesting jobs. But how do you get one? Even if you've acquired a college or technical degree, you may not
be able to get the job you want. The most common question in a job interview is "What experience do you have?"
Jobseekers are then faced with the no-win situation "I can't get a job without experience, but how can I get
experience without a job?" If you allow businesses to pay smaller entry wages, they will offer more opportunities
to jobseekers with no experience. Thus, it's a win-win situation. The business can take on additional workers for
a reasonable price. The jobseeker can gain valuable experience that can be used to get a decent, high-paying
job later on. In the next decade we face a major shortage of highly skilled workers in technology, health care,
and other complex fields. We need to provide people as many opportunities to learn and gain experience as possible.
Abolishing the minimum wage will allow businesses to achieve greater efficiency and lower prices.
Anytime you give businesses more flexibility, you will increase efficiency and lower prices. Let me give you some
examples. Say a McDonald's franchise has a budget of $70 per hour to pay worker wages (without considering benefits
and taxes). If that McDonald's must pay $7 per hour, it can hire 10 workers. If it must only pay $5 per hour, it can
hire 14 workers. If you go to get a burger, in which situation are you more likely to get it faster? Consider the
same situations for a Wal-Mart. In which case are you most likely to find an employee that can take you to an item
or answer questions? Thus, businesses can be more efficient and provide better customer
service with a lower wage. Another example:
imagine three competing coffee shops. All three need to make a certain profit margin to stay in business and make
their effort worthwhile. So they all will lower their prices as much as possible while still covering that necessary
profit margin. If one of them tries to charge more, customers will simply go to the competitor shops. Now assume the
minimum wage is eliminated and each shop can now reduce labor costs by 25 percent. If each doesn't reduce its coffee
prices by a proportional amount, it will lose customers to the other two competitors. So by lowering the minimum wage,
the public now has to pay less for their espressos. This is obviously a simplistic example, but the principle applies
to all businesses. A company cannot simply charge whatever it wants for a product or service. It must always charge
a reasonable multiple of its cost; otherwise, it is heading for bankruptcy.
When you force American companies to pay a certain wage, you increase the likelihood that those companies
will outsource jobs to foreign workers, where labor is much cheaper.
There has been a lot of attention lately on the subject of job "outsourcing", where U.S. companies hire foreign
workers instead of Americans. When businesses outsource American jobs, they're not doing it because they hate
America; they're doing it because they're trying to cut costs. When you increase the price of labor in America, you
create an additional incentive for businesses to hire Canadian, Mexican, or other foreign workers. The best way to
stop outsourcing of jobs is to provide the best conditions for doing business in America. A minimum wage just makes
things tougher for companies to do business in America.
Remember that American companies may have no choice but to outsource
with the high cost in the U.S.--they may go out of business entirely
if they can't cut costs to a level that's competitive with foreign
Non-profit charitable organizations are hurt by the minimum wage.
Keep in mind that minimum wage laws apply to more than big businesses, they apply to government and non-profit organizations.
Charitable organizations are among those most likely to benefit from the elimination of the minimum wage. Let's
take an example. Consider a domestic violence shelter. This type of shelter normally needs workers to clean,
collect & organize donations, counsel & assist residents, monitor help-lines, provide legal assistance in such things
as obtaining restraining orders, and so on. Volunteers help relieve some of the duties, but it's often tough to find
dedicated ongoing volunteers to do the job. After all, volunteers still have to earn a living, raise a family,
etc. However, if the charitable organization were able to pay some amount, even a few dollars an hour,
it would better be able to
build a more steady set of workers. A non-profit organization may simply not be able to afford a $7 per hour pay
rate. Thus, non-profits have only two solutions: dissolve their organizations or hire fewer people to provide the
The minimum wage can drive some small companies out of business.
Many people believe businesses have endless supplies of cash and can easily withstand minimum wage increases or
other cost increases. Unfortunately, that's simply not the case. Over 90 percent of businesses fold within the first
few years. Every time there is a recession, thousands of businesses go under. Restaurants, which pay wages at or near
the minimum wage level, have the highest rate of failure of any
business type. Anytime you increase the costs of businesses,
you push them closer to the edge. Let's take an example. Imagine a small neighborhood hardware store. This hardware
store isn't going to have the logistics and economy of scale advantages of say, Wal-Mart; thus,
it must charge more. It probably makes up the price difference with better service. When you raise the minimum wage,
it increases the
operating costs for that hardware store even more. Thus, it must raise it's prices to cover costs. Eventually, prices
get so high that customers conclude that shopping there isn't worth the additional cost. Slowly, the local hardware
store is driven out of business.
A minimum wage gives businesses an additional incentive to mechanize duties previously held by humans.
Most businesses, especially in the manufacturing and retailing area, have many mundane tasks that need to be
done, such as running a cash register or tightening a bolt on an assembly line. One of the reasons the manufacturing
sector has not been part of the job recovery is that businesses have found it's much cheaper to use machines to do
tasks that were previously done by people. Whenever businesses automate any task, they usually must spend a lot of
upfront money and time in order to save down the line. Because of the minimum wage, spending the upfront time & money
seems more worthwhile. For example, Wal-Mart is in the process of adding automated check-outs to almost all of
its stores. Thus, all those cashier jobs will disappear. Imagine what would happen if the minimum wage was raised
to $8-10 or more, as some politicians want. Do you think Wal-Mart will be more willing or less willing to
add more automated
Cost-of-living differences in various areas of the country make a universal minimum wage difficult to set.
Obviously, $7.15 an hour isn't enough to support a person who lives in the cities of New York, Washington, or
Los Angeles. However, it may be more than enough to support people living in rural areas or small towns. What is it
real estate agents always say about real estate values? Location, location, location. That is why a 1-bedroom
rundown apartment in the city may cost 5 times as much as a well-kept 3-bedroom apartment in a small town. And of
course, housing is only a small part of the cost of living. Consider how much more gas costs for a commuter than it
does for a small town worker who can walk to work. The list goes on. Thus, a $7 minimum wage may be more
reasonable in New York, but it would be ridiculously high in certain small town and rural areas.
Elimination of the minimum wage would mean more citizens and fewer illegals would be hired for low-pay hourly
jobs, leading to greater tax revenues and less incentive for illegal immigration.
There are several low-paying jobs such as housekeeper and nanny that are often filled by illegal immigrants. The
employer doesn't want to pay a citizen the higher rate along with required employer payroll taxes, so they hire someone
off the books, e.g. at $5 per hour. For such a position, there are no federal, state, or social security taxes
withheld. Thus, overall tax revenues for the country are reduced. If you eliminate the minimum wage, you therefore
increase revenues. Also, with fewer jobs available for illegals, there is less incentive to break the law and come to
the country in the first place.
The minimum wage creates a competitive advantage for foreign companies, providing yet another obstacle in
the ability of American companies to compete globally.
The U.S. trade deficit increases every year, which means we're exporting less than we're importing. In an
increasingly global economy, it's important to give American companies every chance to turn out the cheapest and
best products. A minimum wage only applies to workers in the United States; foreign companies can pay what they
want. There are two direct components that go into the price & quality of a product -- raw material and labor.
Thus, when you set a minimum cost level for the labor component, you cause a competitive disadvantage in two
ways. First, the cost per hour of direct labor potentially goes up. Second, in some cases, you force companies to
hire fewer workers, which may affect the quality of the final output. Add it all up and American companies must
work harder to compete with foreign companies, which in the long run costs us jobs, profits, and prestige while
damaging the reputation of American products. One of the reasons we
have such a major trade deficit (where outflows of goods &
services exceeds inflows) is the competitive disadvantages to
business such as the minimum wage.
The minimum wage law is just another example of government condescendingly controlling our actions and
destroying personal choice. Citizens do have the ability to say no to a lower wage.
Why is it that politicians continue to insist that we're too stupid to take personal responsibility for our own
lives? If someone offers us $1 per hour to wash dishes, my guess is that 99.9 percent of us would emphatically
say no. But for some reason, politicians think we need a law to say businesses can't even make that offer.
Has there ever been a time in your life where you thought, "I'd do that job for free!". Maybe that job is
Playboy photographer or it's practice assistant for the Green Bay Packers. Maybe it's a job you know would look great
on a resume but can't get because you lack experience. Personal choice and freedom is what this country is supposed
to be built on, so why should we do anything to limit that?
Adults who currently work for minimum wage are likely to lose jobs to teenagers who will work for much less.
Many adults trying to make a living are forced to work minimum wage jobs. If you take away the government-mandated
minimum wage, companies will often be able to hire teenagers for a fraction of the price. A business isn't going to
pay $5.15 or $7 to an adult factory worker when it can pay $3.50 to a high school student who likely can do the job
just as well. Remember that minimum wage jobs usually require little or no training, so it won't be that hard to
replace those workers who are displaced. The end result of a minimum wage abolishment is that teenagers, who often
are only looking for supplemental income to pay for cars, parties, etc. take work away from those who are
trying to pay the rent or support a family.
Workers need a minimum amount of income from their work to survive and pay the bills.
Someone working 40 hours per week at $7.15 an hour will make about $1000 per month after taxes. Rent alone can take
almost the whole paycheck, especially in high-cost areas of the country like New York and Los
Angeles (some states have higher minimum wages than the federal one
specifically for this reason). Then, you
add in utilities, food, insurance, car payments, credit cards, and on and on. How can a person possibly survive
on less? Businesses can better afford the money than citizens scratching to make ends meet.
Businesses have more power to abuse the labor market.
History shows that businesses left unchecked will abuse their power. Why do you think labor organizations
like the Teamsters,
United Auto Workers, AFL-CIO, etc. have come into existence?
A tight job market, especially during recessions, give citizens the choice of accepting the terms of business
or starving. A minimum wage gives business a reasonable floor that should be paid for the labor of others, whether
skilled or unskilled.
It forces businesses to share some of the vast wealth with the people that help produce it.
American businesses take in trillions of dollars every year. Is it too much to ask that they share a pittance of
it with the people responsible to bringing it to them? We've all read or heard stories of executives with
multi-million dollar bonuses, even with companies that lose money. A few dollars extra per hour for the poorest of
the poor shouldn't hurt that much.
Related LinksThe minimum wage: Washington's perennial myth
Who is paid the minimum wage and who would be affected by an increase?
Wikipedia Minimum Wage Analysis
Step up, not out: the case for raising the minimum wage
The case against a higher minimum wage
Written by: Joe Messerli
Page Last Updated: 11/19/2011