The Wonders of Raising the Minimum Wage

I. Intro

Little, if any, people want others to remain poor. And this is why the minimum wage has become a very popular topic in the American election cycle. Apparently, the minimum wage does not appropriately cover the cost of living, as if anything minimum was ever designed to be heavily relied upon. The minimum wage is exactly as the name states, a minimum. For an individual with no background knowledge on economic theory, an opposition towards raising the minimum wage appears cruel, that for some undefined reason one would truly desire for others to be poor. On the contrary. An opposition to raising the federal minimum wage has little to do with greed or cruelty, and more to do with a firm understanding of the negatives of raising the federal minimum wage, or even having one in the first place. It is time to do away with the Progressive lie that hiking the federal minimum wage does not generate disparity.

II. The Economics

The opposition to raising the minimum wage does not come from a desire to see people continue to be poor and struggle to make ends meet, but rather, a desire to not see people unemployed. It is believed by some that the minimum wage needs to be a living wage, that people should not be working two jobs struggling to make ends meet for themselves or their family. And I contend that while this is terrible, a minimum wage hike is not the answer. On the contrary, buy seo backlinks a minimum wage hike is the exact opposite of what would be considered an answer to this problem. The federal minimum wage, at the end of the day, whether a living wage or not, remains something: it is an example of a price floor in economics. In economic theory, a price floor is the lowest possible price at which a good or service, which would be labor in this situation, can be sold.

 

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It is important to note that a price floor is set above market equilibrium, which is the price at which the demand for a good or service meets the supply for it in the marketplace. With a minimum wage price floor, the suppliers of labor will not sell their labor below the designated price, even if employers desire to hire them for less. Put differently, the minimum wage price floor makes it illegal to hire an individual below the designated price. Now, within the marketplace a price floor creates a surplus, which is when there is greater supply than demand at the designated price. With a higher set minimum wage, more people will be willing to supply labor than that of which is demanded by employers, seeing as labor is  now more costly, and this is what is referred to as a labor surplus, otherwise known as unemployment. With the cost of labor artificially raised, employers may do a set number of things, such as firing low skill employees, not hiring new employees, increasing prices paid by the consumers, or restricting work hours. To all those aspiring for a raise in the mimimum wage, I ask, is this what you desire?

 

It is important to go beyond Stage One thinking when assesing political policies. There is a deadly habit of judging policies by their intents, rather than their results. Raising the mimimum wage will definitely raise the pay for some employees, although it will come at the expense of some jobs, seeing as labor costs are artificially raised. A popular defense for raising the mimimum wage is, “with people making more, they have more to spend, and thus, the economy does better. “Yet, this occurs in times which the employer voluntarily chooses to raise the pay of his employees. One cannot recieve a raise in pay if their low skill job is priced out of the market by a government created price floor.

I have yet to witness any political crusader campaign for a federal minimum wage hike greater than $15. Here arises my question: if the mimimum wage truly does lift people out of poverty, why stop at $15 an hour? Why not raise the minimum wage higher, to simply $20 or $30 an hour? At some point, it will have to be recognized that a mimimum wage this high or higher will result in people being fired. An employer willing to pay someone $30 an hour to flip hamburgers is not very wise, unless the employee is some form of a master chef. If it could be agreed that raising the mimimum wage to $30 would cost jobs, what prevents the same rational from  being applied to situations in which the federal minimum wage is $15, or even exists at all?

III. Raising the Minimum Wage

It doesn’t take much looking around to discover the marvelous results, or rather lack thereof, of minimum wage hikes.

 1. American Samoa

In January of 2007, the minimum wage for individuals in the canning industry stood at $3.26 an hour. It was not until later that same year that Congress decided to apply the 2007 federal minimum wage increase to the tiny Pacific island chain, using 50 cent annual increments to align the Samoan wage with the U.S. hourly rate of $7.25. In May of 2009, the scheduled minimum wage increased to $4.76 an hour. And despite all the political talk on how the minimum wage hikes raise the standard of living, or increase purchasing power, such did not happen in the American Samoa.

One cannery, Chicken of the Sea, closed its doors in September 2009. The other cannery located in Samoa, StarKist, halted hiring, slashed benefits and work hours, and laid off workers. In just a 3 year stretch from 2006 to 2009, the overall Samoan employment dropped 14 percent, and employment in the canning industry was slashed in half. Surely all those who were laid off recieved the pay increases often championed as the golden result of a federal minimum wage increase.

2. Washington D.C.

Looking at restaurant employment, the District of Colombia minumum wage increased to $10.50 an hour in July of 2015 and to $11.50 an hour in July of this year. In just the first 6 months of this year, DC restaurant jobs were cut by 2.7%, or 1400 jobs were lost. Restaurants in D.C. have cut jobs in five of the first 6 months of 2016, at a rate of nearly 8 jobs per day. Interestingly enough, 15 years ago during the Recession of 2001 was the last time D.C. experienced a 1400 job loss during a six month period, and the last time the District had restaurant job losses in five out of six consectutive months was in 1991. If an indiviual was one of the restaurant employees who was laid off, how could they recieve the pay increase that is often asssociated with a federal minimum wage increase?

3. Across America

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Based on 2013 Bureau Labor statistics, states with minimum wages greater than $7.25 an hour averaged lower net job growth rates, as well as higher unemployment rates. For states with a minimum wage at $7.25, the mean annual average unemployment rate 6.4 percent, which was 1.0 percentage point below the 7.4 mean annual average in states with minimum wages above $7.25. Furthermore, the average net job growth rate was 0.8 percent in states with a $7.25 minimum wage, compared to 0.5 percent in states with minimum wages above $7.25. Perhaps the most shocking statistic lies in the unemployment rates with teenagers. In 2013, the mean teenage unemployment rate in states with the minimum wage at $7.25 was 20.5 percent, while states with minimum wages above $7.25 was 22.5 percent.

One study done by Michael Wither and Jeffrey Clemens found that minimum wage increases spanning from December 2006 to December 2012 reduced the national employment population ratio by about 1.4 million jobs, or 0.7 percentage points. Most importantly, it was concluded that the minimum wage increases greatly reduced the likelihood that workers with low skills rose to the earnings of what we consider middle class.

4. Europe

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In 2012, the  21 countries with a minimum wage, mandate had a mean unemployment rate of 11.8%, while the average unemployment rate in the seven countries without a minimum wage mandate was 7.9% – nearly one third lower. The 21 European Union countries with a minimum wage mandate, 27.7% of the youth demographic was unemployed, more than one in four young adults. Meanwhile, the unemployment rate for the seven countries without a minimum wage mandate was 19.5% in 2012.

 

Raising the federal minimum wage is a sacrifice, it is a trade off. In some way or another, it will raise the pay of some employees, in particular those who are highly skilled, while coming at the expense of jobs that are priced out of the market. The very groups that the minimum wage is said to help, low skilled minorities or females, are the ones it does the most harm to. Countless studies have been done illustrating the disproportionate effect that minimum wage hikes have on black males in comparison to other groups.

For example, economist Thomas Sowell notes,  “in 1948 the unemployment rate among black 16 and 17 year olds was around 9.4 percent. Over the decades since then, we have gotten used to uneployment rates among black teens being over 30 percent.” What could account for this large leap in unemployment? America is not more racist now than it was in the 40s, despite popular belief. But, America is more intent on bringing people out of poverty by forcing prosperity, which has its own host of unintended consequences.

Minimum wage hikes are the perfect tool to price the labor of particular people out of the market. For example, in a study done by ecomomist Walter Williams on South African labor markets, one white union leader was quoted saying  “… I support the rate for the job (minimum wages) as the second best way of protecting white artisans.” White unions were able to completely insulate themselves from competition that would otherwise be present in a free market by pricing out black laborers  with a minimum wage mandate.

When attempting to raise the incomes of those who are poor, it is important to note that a truly free lunch does not exist in this world. I would love just as much for the next person for my government to be able to raise the minumum wage and reduce poverty. Unfortunately, government is not the savior that many ask it to be.

IV. Demographics and Economic Mobility

1.  Minimum Wage Demographics

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Illustrated by Table 1, over 60 percent of minimum wage workers have no high school education. They simply do not have the skill and productivity to recieve a higher pay. This is not the fault of the business owner, no one is being exploited in this situation. The entire purpose of the minimum wage is not to be a living wage, but rather, to provide individuals with the experience to eventually earn a living wage. Minimum wage jobs provide people with job skills that are necessary to getting ahead within the work setting. In essence, they are the first bars on the ladder, helping workers to gradually gain more experience and become more productive.

In 2012, just 2.9 percent of all workers in the U.S. reported earning $7.25 or less. per hour. Just over half of those earning minimum wage fall between the ages of 16 and 24. The remanining portion are age 25 or older. And, 75 percent of the adults earning minumum wage live above the poverty line. While it is constantly argued that raising the minimum wage will help low income single parents, the bulk collection of those truly earning minimum wage do not fit this description. Only 4 percent of minimum wage workers are single parents working full time.

So, while some minumum wage workers do in fact struggle with poverty, they are not an accurate representation of the typical minimum wage worker. In the end, the solution to helping single parents earning minimum wage is not to price their labor out of the market with a minimum wage hike. This would only heighten the likelihood that they be laid off. And in the end, a low source of income is better than no income at all, is it not?

2. Economic Mobility

People who currently earn the minumum wage are not trapped there for most of their working lives.The $7.25 wage you are receiving now at 16 is not going to be the exact same wage you are recieiving when you are 44. In fact, over 66 percent of workers starting out at the minimum wage earn more than that a year later. Furthermore, over 50 percent of Americans started their careers within one dollar of the minimum wage. Are these people still being paid the minimum wage?

Individuals are not stuck in this cell of low pay for their entire lives. And, once it is recognized that workers do have a say in the speed of their promotion, the situation becomes less bleak. For example, a minimum wage worker working for less than 10 hours weekly is 13 percentage points less likely to be promoted within a year than a minimum wage employee who logs 35 hours or more a week. Eventually, the theory that the social barrier of discriminatory exploitative business owners is holding down the pay of single parents will have to be down away with, due to the fact that studies that follow actual individuals over time lead to very different conclusions.

Some of the most popular phrases in discussions on wage stagnation are “the top 1%” or the “bottom 99%.” Yet, if one steps beyond the emotional rhetoric, and looks to empirical evidence, these groups are not closed off lounges. Quite the opposite really.

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Only 56 percent of the households that were in the bottom 20 percent in 2001 remained in the same income quintile in 2007, and the remaining 44 percent had gravitated up to one of the four higher income quintiles by 2007. 5 percent of the households in the lowest earnings quintile in 2001 moved up to one of the top two quintiles by 2007. Of the households in the top 20 percent in 2001, only two thirds were there six years later. 5 percent of the highest earning households in 2001 moved completely down to the bottom quintile by 2007. 32 percent of the middle income households in 2001 moved to a higher income quintile by 2007, whereas 42 percent remained in the same quintile and 27 moved to a lower income quintile. More than half of households in the fourth, third, and second income quintiles moved to a different earnings quintile during the six year stretch between 2001 and 2007.

People move between the income quintiles amidst their careers and lives. Accoring to economist Thomas Sowell, “Most working Americans, who were initially in the bottom 20% of income-earners, rise out of that bottom 20%. More of them end up in the top 20% than remain in the bottom 20%.” Over half of Americans will be in the top 10 percent of income-earners for at least one year of their working lives. Take note, that a large portion of economic mobility is explained by individual choices. People are not going to be recieving what is characterized as a “starvation wage” for the bulk of their working lives. On the contary. Look at the economic fate of actual human beings, not constantly recited tales on suffering demographics, and the push for minimum wage hikes, as well as for “fair economic growth,” loses tremendous substance.

V. The Final Take

I want to reduce poverty just as much as the next person. However, artificially raising labor costs and forcing the hand of employers is not the answer. I would never advocate for forcing a person to work for an employer at a given wage. Through the same logic, I would never advocate for forcing an employer to pay a person at a given wage or higher. It ultimately comes down to whether the preference is to have more employed and wages raise naturally through the decision of the employer, or to have less employed and wages be artifically raised through the decision of the government, which is compelled by force.

People who advocate for raising the minimum wage while simultaneously not grasping its unintended consequences are well-intentioned, but also dangerous. Judging a policy by its intent rather than result is nothing short of a dangerous habit. It is not a question of whether raising the minimum is moral, it appears to be moral, but its results are not. Rather, it is a question of whether the minumum wage is effective, if what it is intended to achieved is truly achieved. And time after time, study after study, raising the minimum wage does not do what its advocates intend for it to do.

There are a multitude of misconceptions on the minimum wage from the belief that the minimum wage is designed to be a living wage since workers are trapped under this wage forever, to the idea that wages are not metrics that reflect value. The crucial question, for those that desire a minimum wage hike, is whether the trade-off—an increased likelihood of unemployment—offsets the increased wage. But alas,  in the end, the real minimum wage is zero.

Notes

“Economics”

https://www.google.com/amp/s/mercury.postlight.com/amp%3furl=https://fee.org/articles/price-floors-surpluses-and-the-minimum-wage/

“Raising the Minimum Wage”

https://www.americanactionforum.org/research/how-minimum-wage-increased-unemployment-and-reduced-job-creation-in-2013/

http://www.heritage.org/research/testimony/2013/06/what-is-minimum-wage-its-history-and-effects-on-the-economy

https://mises.org/library/yes-minimum-wages-still-increase-unemployment

http://www.cato.org/blog/europes-youth-minimum-wages-mean-minimal-employment-0

“Demographics and Economic Mobility”

http://www.heritage.org/research/testimony/2013/06/what-is-minimum-wage-its-history-and-effects-on-the-economy

https://www.google.com/amp/townhall.com/columnists/thomassowell/2013/03/06/economic-mobility-n1525556%3famp=true?client=safari

Isaiah Minter is a guest contributor for New media Central. Find him at his at his website- The Savior Files

Sal Traina

About Isaiah Minter

Sal authored & co-authored articles in various political and technology publications, e-newsletters, websites, & blogs. In radio, he wrote a blueprint for successful internet radio programming and station management. Sal has a gained a reputation as a captivating and polarizing digital and print media figure INTERESTS: -Political history, philosophy and libertarian politics -Talk radio and program management -Studying and exposing mainstream media propoganda, corporatism, and pop culture shaping by global elites -Writing about the decline of American culture, the complacency of the masses, and promoting personal responsibility