There has been a lot of discussion lately about raising the minimum wage; President Obama has even called for the raising of the minimum wage to $9 per hour. This sounds like a good idea at first glance. All those people working at fast food restaurants will make more money and that will help them. Fast food workers even took to the drive thru to protest their wage and demand more money. Somehow, these economists, like Paul Krugman, ignore the historic data, ignore economic law and promote the raising of the minimum wage. Their intentions may be good, but as the old saying goes, the road to hell is paved with good intentions.
First let’s take a look at historical data. When you raise the minimum wage, you displace the low and unskilled workers that you claim you are helping. A wage is just a contract between two parties. You trade your skill to someone that is willing to compensate for that skill. The wage is the agreement between the two parties. Compensation is usually determined by the skill you bring to the table, the value that skill has to the employer. For some crazy, illogical reason, supporters of a minimum wage seem to think that if there is no law, that everyone will be making $0.02 per hour. This is so ridiculous that it is not even worth discussing. But if you want some evidence, look at Henry Ford. Workers that are not providing a skill that is worth the minimum wage will not be hired. This obviously affects the low and non-skilled the most.
Next, let’s look at the economic law. Supply and demand is an economic law; those two forces meet at an equilibrium point which determines prices. As the demand for a commodity goes up, it increases the price. As the supply for a commodity goes up, the price comes down. The law of supply and demand is based on scarcity. If the equilibrium point is artificially manipulated it distorts the entire picture. Price floors and ceilings are examples of manipulating the natural economic price model. This law applies to wages, just like any other price. As the price of labor increases, the demand will decrease. If there is an increase in the cost of labor, the result is less labor. Think of ATM’s, they have resulted in less bank tellers and the supermarket self-checkout that have resulted in less checkers and coming soon because of the fast food wage debate, the automated order taker. The labor supply that is displaced is those whose skills are not worth the increase, the low and non-skilled.
Finally, let’s look at the potential ramifications. Entry level jobs are designed for those that have little or no skill. The intention of an entry level job is to provide the skills necessary to move up the job ladder, to acquire skills and experience that other employers are looking for. You leave your entry level job for a semi-skilled position and start the process over again. Entry level jobs are not designed to be careers, just stepping stones. If the price for an entry level is doubled, as proposed by the fast food workers, what does that do to the more skilled jobs? If all of sudden the cost of an entry level job doubled, what does that do to all of the semi-skilled workers that are now making the same wage as a non-skilled worker? Do they now all of sudden deserve twice their wage? It’s a slippery slope that is only possible when the government is involved. Because someone is unhappy with their job, everyone else is supposed to change to make them happy. It shows the problem with our society, it’s always someone else’s fault, you are the victim, not the problem. You do not have the skills for a better paying job, do not obtain the skills needed, play the victim and demand something for nothing.