Money is just a measure of the worth of something, the value that a good or service provides (see
http://en.wikipedia.org/wiki/Value_%28economics%29). In a healthy, competitive market, the price should come very close to the value of the item. If the price is artificially changed by some force outside of the market, then the market must make adjustments in order to re-establish equilibrium between price and value. Thus raising the minimum wage artificially through government action is a terrible idea, esp. in an economy that is already struggling.
First of all, the reason behind raising the minimum wage is to help out the working poor -- those people that are struggling to get their heads "above water" while working at a lower paying job. However it may surprise some of you to know that few of these working poor have minimum wage jobs... Minimum wage is for jobs that require no experience and no education. Thus most of the workers getting minimum wage are teenagers because they are too young to have any experience and are probably still in high school so don't have a whole lot of education either. However these teenagers are living at home, usually in a family that is in the middle or upper end of income earners. Thus by raising the minimum wage you are more likely to "help out" teens from wealthier families.
The reason why few working poor actually have minimum wage jobs is because they've probably been in that category of working poor for most of their working lives. Thus they actually now DO have experience and perhaps even at least a high school degree. So they are more apt to be in a higher level of employment, making more than just the minimum wage. They are more likely to be a head cashier, assistant manager, head bartender, lead operator, etc. and are being paid accordingly. So they may already be making $10 / hour.
Now imagine that you are one of those working poor making about $10 / hour and the minimum wage gets passed to increase it to $10 / hour. Now you're seeing these teenagers who just started working a few months ago being paid the same amount that you are, and you've been with the company for a good 5 years. You're going to be upset and demand a higher wage too. And on it goes up through the rest of the company, each level demanding higher wages because they are worth more as a worker than the level below them that just got a raise for no reason (other than the government mandated it). So if the company can handle the cost (and that is a mighty big if), all the minimum wage increase does is most likely provide a temporary boost to the wages of wealthy teenagers until the wages throughout the rest of the company can normalize itself.
However I mentioned that it is a huge assumption that a company will be able to handle all of the wage increases throughout the company without having any other effect in the company. Most likely the company will have to do other things in order to handle this additional cost imposed on them. They might cut jobs or at the very least cut hours (esp. for anyone working 35+ hours per week so as to also eliminate other costs that they provide to full-time workers). And if they are going to be doing this, the company will first start cutting those lower waged jobs where if the company does better in the future and can re-fill those jobs, they can fill those slots from a larger pool of people qualified. In fact if the minimum wage jobs are necessary to maintain throughput, they may target those second level jobs more, esp. if the manager can handle a little more responsibility by doing what the assistant manager would be doing. And if the working poor are more apt to be found in those positions, the minimum wage will actually adversely affect those individuals.
A company may also attempt to handle those additional costs by increasing prices and having the consumer pay for these wage increases. If prices increase, the cost of living will also increase for everyone that requires that particular good or service. However since the minimum wage increase would effect all companies regardless of the sector (ie whether the company provides a necessity or just a luxury), this will increase the cost of living for
everyone. If a person's current wage makes it difficult to make ends meet, increasing prices will once again adversely affect those individuals. Additionally it hurts even more so those that do not work (eg those that are temporarily unemployed, the elderly who are on a fixed income, those people disabled that cannot work, children that are too young to work (the family of the child would cover those additional costs for the kids, but would decrease the power of the family's dollar), or even those that are just lazy and do not work), since in addition to the higher cost of living, they may not get an increase in the amount of money they receive (some COLA increases for public assistance is tied to the Consumer Price Index which does
not take into account increases in food, fuel, and some other commodities because of their volatility and yet are the precise items that would effect an average person's actual cost of living).
And for those that like to use class envy as a reason for a minimum wage hike, you are first having to make an assumption which then must be ruled out for the minimum wage increase to work in the way that you imagine it should. The argument goes like this... There will be some statistic showing how much the highest CEOs are being paid and the divide between those executives versus those making minimum wage. They will then conclude that this is unfair and that the executive could afford to fork over some of their salary to pay the minimum wage workers more money. However this makes no sense when you analyze the situation and bring light to that assumption that I had mentioned earlier. The assumption is that the executives with the high salary are
so greedy that they are making their money on the backs of the minimum wage earners without any respect to their workers' worth / value to the company. But if that assumption is true, then with the minimum wage increase, wouldn't it make more sense that those CEOs still remain greedy and would use other tactics like cutting on people's hours, increasing prices, etc. so that their salary wouldn't go down; for you'd have to imagine that those CEOs "magically" have a 180-degree change of heart and become altruistic for them to agree to use their high salary to pay off the minimum wage increase.
Community Forum
Topic: Is the Current 'Minimum-Wage' High Enough? (Read 9051 times)
June 20, 2009, 08:37:08 pm
