Why Hiking the Minimum Wage is Bad for Everyone

minimum wageThis week, state Representative Butch Wilkins introduced a bill to increase the government-mandated minimum wage from $6.25 to $8.25 per hour — an increase of 32%. Raising the minimum wage is one of those ideas that sounds great as long as you don’t think about it very much. Perhaps the most immediate consequence for Arkansans will be the artificial spike in prices on consumer goods. How many of you would like to pay 32% more for your meals?

But of course you won’t pay exactly 32% more for your meals because businesses will find ways to cope with these costs in order to provide food. They can’t just raise the price of a Whopper meal from $6 to $8 — the market won’t sustain such a high price. So what will businesses do?

As this great video from LearnLiberty explains, minimum wage laws don’t force businesses to pay minimum wage to all of their employees — it forces them to pay minimum wage to the employees they keep. Employers will pay exactly $0 to the employees they are forced to lay off and $0 to employees that they cannot afford to hire. In addition, the resulting layoffs will require remaining workers to take on a heavier workload. The result: fewer jobs and heavier burdens on businesses.

Michael Pakko, one of Arkansas’s finest economists, adds that the minimum wage is an inefficient and ineffective way to truly help the poor:

When we raise the minimum wage, it’s not necessarily an efficient, targeted way to help the working poor, which is who we really want to help in this circumstance. There are more direct ways to benefit that segment of society. So, it’s not a very sharp instrument. It’s not a very useful tool for really addressing the problem to help the working poor find a better way of life. And, as I mentioned, the drawback makes it more difficult for younger, inexperienced workers to get their foot in the door.

Ideally, we’d all base our political views on evidence and argument, without getting swept up by the urge to collapse into pure emotionalism. State lawmakers must resist that urge and have the courage to make decisions that will truly benefit the poor. While it may make lawmakers feel better in the short term, heaping increasing costs on employers and consumers will not solve our economic problems in the long term. Hiking the minimum wage will contract jobs and expand poverty, leaving more Arkansans dependent upon the state for sustenance.

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4 thoughts on “Why Hiking the Minimum Wage is Bad for Everyone

  • February 25, 2013 at 12:08 pm

    While $6.25 to $8.25 is indeed 32%, the companies that meet the exemption from paying the Federal Minimum Wage of $7.25 to its employees are far and few between–they certainly aren’t creating household name products like the “Whopper.” While I admit that 14% is still nothing to scoff at, I find your 32% a tad misleading.

    Let’s be honest, at $6.25, that barely puts a 40-hour work week above the federal poverty line of $11,490 (for a household of one). Heaven forbid I am a single mother; I wouldn’t be near the poverty line for a household of two. ¡No es bueno!

  • February 25, 2013 at 12:17 pm

    As long as we’re being honest, let’s add this: the federal poverty line would not be lower if the government didn’t artificially inflate the cost of consumer goods by mandating minimum wages.

    If the government mandates that someone make an additional $1 per hour to arrange produce, the cost of produce is going to go up. Businesses don’t just absorb that cost, they pass it along to the consumers. So having that extra $1 per hour isn’t going to help the produce worker much when their cost of living jumps due to government-fabricated price increases.

    In addition, as I point out in the article, minimum wage laws will often cost employees their jobs. A lot of businesses aren’t going to pay a single mother $8.25 for a $6.25 job. They’re going to fire her and pass her responsibilities on to another employee in order to remain profitable. Because, in a truly free market, employees are paid what they earn, not what the government says they should get. In that free market, the prices of consumer goods are considerably cheaper, and the overall earning power of the individual is maximized.

  • February 25, 2013 at 5:41 pm

    As long as we’re being honest, let’s look at how many “working poor” are making at or below minimum wage.

    According to the Bureaue of Labor Statistics, people making at or below the minimum wage account for 5.2% of all hourly employees and less than 3% of all employees. Most of the rest of the BLS statistics only compare minimum wage workers to “hourly” workers, which makes them look worse than they actually are (which isn’t bad once we look at the numbers).
    Remember, these numbers now are for folks making “hourly” wages, excluding salaried and commissioned:
    23% of working teenagers made minimum wage compared to 3% of workers 25 and over.
    11% of people without a HS diploma made minimum wage or less compared to 5% of HS graduates and 2% of college grads.
    Only 2.4% of married workers are making minimum wage or less.
    Only 2.1% of workers working 35 hours or more per week make minimum wage.
    In Arkansas, 6.6% of hourly workers make the minimum wage.
    Roughly 60% of minimum wage workers are in the service industry (restaurants, etc.). Interestingly, the federal government did not see fit to report the number of them who also reported tip income.

    The reality is that the mom and dad both making minimum wage in their attempt to raise a family is a stereotype that is virtually non-existent. Minimum wage workers are overwhelmingly part-time workers who are high school or college students. A few married folks make minimum wage (I did when working my way through college), but the statistical fact is that raising the minimum wage helps high school kids have money to blow on the movies, it doesn’t help impoverished, struggling families.

    Lest anyone want more data about who earns the minimum wage in America:

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