One of the main points of President Obama’s recent State of the Union address was raising the federal minimum wage from $7.25 to $9.00 an hour. While raising the minimum wage is a noble gesture, allowing workers earning these wages to afford more and therefore live better, it ends up having unintended and disastrous consequences for all involved: workers, businesses, government and consumers.
To start, this action would first and foremost hurt businesses. Should a business maintain their current workforce, raising the minimum wage by 20% will increase labor costs for businesses by that same percentage. If that alone reason enough to not move forward with the plan, businesses are then going to start implementing cost-cutting measures. The first of those measures is that businesses are not going to maintain their current workforce, which leads me to my next point.
To cut costs, businesses will not keep low-productivity employees. Before a raise in minimum wage, the labor costs may have been just low enough that a businesses could keep these types of employees on staff. However, after a raise in minimum wage, businesses will start to keep only high-productivity workers and be more apt to letting more lower-productivity workers go or not even hire them to begin with. This, inevitably, leads to higher unemployment and, in some cases, lost tax revenue.
Simply, business is about making a profit. Businesses will attempt to keep a profit margin similar to what they have now. That means an increase in minimum wage will be paid for on the shoulders of people like you and me: the end consumer. Costs will be passed down to consumer level to maintain a stable profit margin and prices will rise across the board for goods and services, all because the government is mandating a higher wage.
Slowly but surely, a consistent raising of the minimum wage makes it minimum in name only. While setting a minimum wage is by all means a necessary regulation to provide a stable low-end baseline for the economic vitality of America, the free market should ultimately be allowed to decide what wages a worker’s productivity merits. Taking any other course of action leads to higher unemployment for lower-income Americans, a higher cost of doing business for the private sector, possible lost tax revenue for the government, and a higher cost of living for all Americans. All bad things.
In conclusion, while I agree with the sentiment of getting America’s economy back on track, I simply disagree with how to go about doing that. Though many may try, you just can’t regulate America back to prosperity.