Minimum wage has once again reared its ugly head in the news. A recent CNN Money poll found that 71 percent of the people surveyed favor a hike in the federal minimum wage. There is an obvious disconnect between the reality of a hike and the perception the American people have about what the hike will accomplish.
Wages are merely the price paid for a good, no different than what you pay for a quart of milk. The good in this case is productivity. Most people have the misconception that wages are paid an employee for the time they spend on the job.
That is untrue. Wages are what employers pay an employee to produce something for them. A more skilled, more productive employee is more valuable than an employee who is not as skilled or productive. To make my point, do you think an employee who goofs off for eight hours has earned their pay and is just as deserving as an employee who busts their hump for eight hours?
Since wages are placeholders for productivity, the level of productivity decides the wage that should be paid. If the worker produces goods or services worth $10 per hour, the employer can only pay that worker the $10 minus the overhead the employer has incurred to make the job available. If the overhead is say $4 per man-hour worked, then the maximum the worker can be paid is $6 per hour for the business to break even and remain a going concern.
Now that we understand what a wage actually represents, let us apply that to the minimum wage and list just a few of the reasons why the minimum wage is a bad idea.
The minimum wage is merely the government telling us what we have to pay for a good. If the government passed a law that the price of everything on Walmart's shelves must be increased, there would be riots in the streets. This is supposed to be a free country and you should be able to buy whatever you want at the lowest price you can find. In a free country the government surely would not be able to dictate a price of any good.
Since labor is a good that is purchased, what is the difference between the government telling us what we must pay for goods at Walmart and what we must pay for labor? There is no difference. Both are an infringement on our freedoms.
What happens when the minimum wage is increased? The minimum wage worker is perhaps better off in the short run, if they don't lose their job. But prices eventually catch up with the increased labor costs.
Thus in the long run the minimum wage worker is back to where he or she started as far as a standard of living and all that has been accomplished is to jumpstart inflation. A minimum wage increase does not improve their long-term purchasing power. It does however reduce the purchasing power of all those who did not get a pay increase along with the increased minimum wage. When a restaurant is forced to raise its prices because many of their employees just received a government mandated raise, everyone who didn't benefit from the raise but must pay the higher prices is worse off.
The minimum wage also reduces employment opportunities for low skill workers. If you are a worker who is looking for a job and don't have the skills, education or experience to offer, you will never be hired in the first place. How many of us have spent most of a job interview talking about our experience? If the minimum wage is increased to the point where there are fewer entry level jobs, where are those people going to gain the experience that will enable them to be hired elsewhere? All the increased minimum wage has accomplished is to remove the first rung on the economic ladder for those workers attempting to acquire the attributes that in the future would permit them to find a better job.
Politicians and the media have convinced the American people that all business owners have an unlimited pot of cash that they can dip into to pay for the plethora of government mandates. The reality is, according to the Bureau of Labor Statistics, 57 percent of workers are employed by small businesses. Ninety-five percent of small businesses fail in the first five years. Most small businesses fail because they lack enough cash or encounter cash flow problems that they are unable to rectify. In other words, a large percentage of employees in America work for employers that are operating on very tight budgets. The employer's biggest struggle from week to week is to have enough cash on hand to make payroll.
An increase in that payroll liability cannot be covered by most of these tight budget operations. Thus when the minimum wage is increased, employers are forced to lay off any worker whose productivity doesn't warrant the increased wage. Study after study has shown the minimum wage and low-level employment opportunities have a negative correlation. The Congressional Budget Office projects 500,000 jobs would be lost due to the proposed increase in the minimum wage to $10.
An increase in labor costs will force the employers to find alternative ways to accomplish tasks with fewer employees. Another misconception is that it is never economically feasible to replace minimum wage workers with automation. Since the dawn of the industrial revolution in the mid-1700s, machines have been replacing human labor at an ever increasing rate. Machines offer constant performance, they don't require Obamacare, Workers' Compensation, Unemployment, Social Security, Family and Medical Leave among other government mandated benefits, not to mention the cost of administering all those benefits. The employer doesn't incur the cost of complying with OSHA, ADA, NLRB, EEOC and all the other labor-related government agencies and regulations. Every increase in the minimum wage lessens the gap between the cost of that labor and a machine to replace that employee.
Another way to look at this, it is just another government program attempting to diminish personal responsibility. Should it not be incumbent on the individual to acquire the attributes necessary to put themselves in a position where the minimum wage is of no concern, where they offer the employer qualifications that warrant a living wage? The government is forcing the employer to subsidize the employee's poor life choices not to acquire the skills that would improve their employment situation. This is just another facet of socialism. The government is merely imposing a system of mandatory employer financed charity.
Thus, the "living wage" is one of those ideas that might sound good in theory but in reality has unintended consequences that have a terrible effect on those who are supposed to be helped, the economy as a whole, and our liberty. Another government initiative that accomplishes the exact opposite of its stated intent while trampling our Constitutional rights. Wouldn't it be great if 71 percent of those polled demanded the government abide by the Constitution and promote the free market instead of imposing unconstitutional edicts upon its citizens? What a great country that would be!
Read Jack Loesch's web site at www.TorchNFork.info.
He may be reached at: TorchNFork@frontier.com.