So here we are, the first full week of a new minimum wage. For many, this is a good week, one where their wages will be higher than ever and they’ll have a bit more money to stimulate the economy. It sounds like this might just be the jump start the economy needs, right?
Not really.
You see, for all the good intentions behind the minimum wage, there is an inescapable fact that often gets missed. Businesses only bring in so much money and they have to prioritize what gets what. “So what?” you may ask. After all, there’s now more wages being earned, so that should increase what these businesses make, offsetting the loss, right?
No. You see, the majority of wage earners aren’t minimum wage earners. Since those people won’t necessarily see an increase in wages, there’s really not that much more going to local businesses. Obviously, this means that the money that currently goes into those businesses won’t go as far.
Now, put yourself in those businesses’ shoes. You’ve only got so much money coming in. You’ve got one guy who was barely worth what you were paying him at the previous minimum wage. He’s not unwilling, but perhaps he’s just not capable. Now, your bottom line is getting hit and this guy just isn’t worth it any longer. So you let him go.
Now, let me ask you this: What is better, for this guy to have a job that doesn’t pay a lot or for this guy to be unemployed? These unintended consequences are often missed, but are especially important in an economy like the one we’re currently experiencing. So what’s the option?
First, I want to poke a hole in the myth of the minimum wage. It sounds great, and it really does. On the surface, there’s little to argue against unless you’re some heartless SOB who doesn’t care about the poor. The truth, however, is a different matter entirely.
In the United States, only about 2-2.5% of the working population make minimum wage. Now, many of those are students in some capacity, many of whom are living at home and are just looking for some spending money. What’s left are untrained workers who lack any kind of job skills to warrant higher wages.
Now, many will say that the minimum wage is essential to keep employers from paying people far to little for their labor, but if that’s true, why is only 2.5% of the working population making that minimum? If the “greedy corporate monsters” wanted to just pay as little as possible, why aren’t the numbers a lot higher? Simple. The free market.
For now anyways, there’s few legal restrictions on jobs. You can go from one job to another, and most people do. If you work for ABC, Inc and don’t like the wages or benefits, you’re free to go to XYZ, Ltd. So, ABC has to compete for employees which drives up wages at ABC. XYZ, wanting that same talent, raises theirs as well. This happens all across the employment spectrum. The best and brightest get rewarded, obviously, but wages actually increase for everyone else as well.
So what about those who are at the “bottom of the pile”? Should they get a little more? It sounds good, but what about those at the bottom of that pile who now get kicked out of that pile? They go from getting what they were to getting nothing.
Beware of the unintended consequences.
This is a great analysis that overflowing with common sense. In an effort to put an optimistic spin on that which I cannot change at the moment, I can only hope that those who are in the marginal position may realize that their job could be in jeapordy and have the light bulb go off that says, “I had better improve myself – now.” Of course, those who have that mindset are doing it already and would not settle for staying at minimum wage no matter what it is.
94% of those earning minimun wage are between the ages of 16 and 24
Thanks Don. I agree about those who are driven are already doing so. I used to work minimum wage as well. I don’t anymore. I make a good bit more than that actually. I had to work for it though…it didn’t just happen. Then again, I was never happy with minimum wage.
Those who are happy with it are the ones that frankly concern me.
I just spoke to a person who works a a dry cleaner…she told me that the owner announced that there would be no more free cleaning for the employees because of the increase and that there would be an evaluation whether or not they would be able to keep the current amount of employees….That is reality….
Mike: I wasn’t sure of the exact percentage, but that’s not surprising. Of course, some of those aren’t students, the majority of them are. Of course, many of those will likely be earning more than minimum wage within the next five to ten years without any kind of law. They’ll be experienced in whatever fields they may be working in. Provided they can keep their jobs that long.
Ashley: I’m honestly not surprised. This is happening all over the country as well. Unfortunately, it’s to late now.
The percentages that Mike quoted are no surprise. For the most part, these are entry level jobs, despite Congress treating them as if they were primarily bread-winner career positions.
Most of us have worked a minimum wage or even lower paying jobs. I certainly did in my younger days. I do not recall any bitterness about the pay. If you have a work ethic instead of an entitlement mentality, you welcome an entry level job as an opportunity to prove yourself to your employer. You want your employer thinking that he can’t afford to lose you. Are those days gone?
BTW, good article Tom.