In 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.
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?