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The economic argument against the minimum wage

There has been debate in Washington and Albany about raising the minimum wage. The issue of raising the minimum wage has been an issue for President Obama since the 2014 State of the Union Address in January. In yesterday's debate between the Republican congressional candidates they were asked of their stance on raising the federal minimum wage.

NY fast food workers strike for higher pay
NY fast food workers strike for higher pay
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Both candidates expressed their view that government should impose a mandated minimum wage. Their only difference of opinion was that Elise Stefanik believed the federal government should control wages while Matt Doheny stated that wages should be controlled at the state level.

Raising the minimum wage is a bad idea and ignores economic reality regardless of whether the power lies in Washington or at the states.

In a speech in Connecticut on 5 March, President Obama spoke of his plan to raise the federal minimum wage to $10.10 an hour. “It makes a big difference in the lives of a lot of families,” the president continued.” So members of the Congress have a choice to make. It is a clear choice: Raise workers’ wages, grow our economy, or let wages stagnate further, give workers what amounts to another pay cut.”

The president's statements are false. Raising the minimum wage, according to a Congressional Budget Office report, will cost 500,000 jobs in 2016. It will also cost employers $31 billion in the first year.

Labor is a commodity. It is a cost to employers. Employers have to make more than their costs in profits or they go out of business. The increase in the cost of labor will have to be made up either with the increase in their prices or the decrease in the amount of labor they hire either in net jobs or in the number of hours their current labor works. Either way, prices rise and the lowest skilled laborers who demand a minimum wage in the market work less and face higher prices.

Government distorts the market for labor when it artificially imposes a price floor for it, causing a surplus - or unemployment. Skilled labor will still hold a premium in the market, unskilled and young workers will become the government created surplus. Meaning, they will either stay or become unemployed.

Ironically, this is the exact demographic that proponents of the minimum wage say they want to help. But, instead, it is unskilled and young workers that are priced out of the market by government imposed minimum wages.

Experienced workers are already earning above the minimum wage. Minimum wage jobs are not intended to be a "living wage" for adults to raise a family. The minimum wage is for entry level positions that allows young workers to enter the workforce and gain experience. That accumulated experience will then translate into that worker's ability to demand a higher wage. Instead, entry level and unskilled jobs are disappearing.

The Left will portray these jobs as careers. Their assumption is there is no upward mobility once workers get hired. Their argument for the increase in the minimum wage is that employees will stagnate in their current jobs. It is the responsibility of the employee to work hard, learn and grow within their field and therefore receive raises and promotions over time. Instead, the liberals shift the responsibility onto the employers to perpetually increase the wages of their workers without an increase in their productivity.

How many movie theaters still have ushers? Customers at gas stations now pump their own gas where gas station attendants once washed windshields and checked customers' oil. An increase in the minimum wage now will have the same effect. Momentum Machines - a San Francisco-based robotics company has unveiled the 'Smart Restaurants' machine which is capable of making 360 customized' gourmet burgers per hour without the aid of a human.

According Momentum’s official release,“Fast food doesn’t have to have a negative connotation anymore. With our technology, a restaurant can offer gourmet quality burgers at fast food prices. Our alpha machine replaces all of the hamburger line cooks in a restaurant. It does everything employees can do except better.” to The San Francisco-based robotics company is proposing a chain of ‘smart restaurants’ that eschew human cooks altogether.

Additionally, the national restaurant chain Applebee's announced it would install 100,000 tabletop tablets for ordering and payments at its restaurants next year. Chili's announced a similar move in September. Panera Bread also recently announced its plans to replace the majority of its cashiers with automated kiosks by late 2016.

If the commodity of human labor is no longer cost effective, the first to go will be the low skilled workers. A government imposed minimum wage will cost jobs, raise the unemployment and raise prices. The result is that everyone is poorer.

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