Thursday, February 14, 2013

Why Minimum Wage Laws Are Bad

The right seems to continuously lose the fight against minimum wage laws. It's unpopular to tell people who make low wages they aren't worth more. If a person believes they are worth more, they should put forth the determination to prove to the employer they are worthy of that next promotion. When younger, I was one of those minimum wage workers. I was working part time in the summer while school was out. I thought I was rich. I was rich by my standards.

Take the family of four living off the same wage. They would suffer. We must ask where that family would be if there was no minimum wage. It's likely they might have an even lower wage. The worker would have no choice but to seek a job with more pay. That worker, in a healthy economy, will find a job paying more. The previous employer who chose to cut wages,or keep wages low, will likely have to increases wages to fill that job. The market and local economy will always dictate wages for particular jobs. If you have 1000 potential workers wanting to pick fruit, and jobs available for only 500 people, wages will drop. If there are only 500 people vying for 1000 jobs, wages will increase. The reason wages will go up is that since there are not enough workers, they will try to attract the best workers who will produce more. To attract the best workers, employers must pay more.

I remember right after NAFTA passed, I had a friend who often worked south of the border. Because of easy access to the US markets, manufacturing began to spring up along that corridor. Those manufacturers were continuously competing for workers because there was not enough people to fill the jobs. Each manufacturer would raise wages to lure workers from a competitor. Workers went back and forth, each time getting an increase in pay.

If government forces the employer to pay a minimum wage, that employer will have several choices. They can pay the wage increase and raise prices on goods and services, or they can reduce the labor force. For a moment, let's just stick to the employer who raises prices on services and goods. Those workers are at first happy they can buy more with their paycheck. As time goes on, they find the cost of living has increased because many employers had to increase prices of goods and services. In a short time the spending power of that larger paycheck is no more than before the wage increase.

This points to why any forced wage increase hurts, or in the end has no lingering effect, but can be especially harmful if the wage increase is forced on a national level. The USA isn't one huge economy, but thousands of regional economies. It is far cheaper to live in Charlotte, N.C. than New York City. It's for this reason states have their own minimum wage laws.

Another problem with minimum wage laws, is they interfere with the free market economy. Anytime government interferes with the economy, there are hiccups. It's hard to say how long these hiccups last, but in time, the market will level the playing field. You can be sure there will be jobs loses when wages are increased by force.

The only thing that can help all workers is a strong, stable economy. Wages always go up when there are fewer people vying for jobs. When unemployment is high and people are begging for jobs, employers will lower wages in an effort to hire as many people as possible. Some might argue this isn't fair for the worker. Is it better to pay 10 workers $100 or 100 workers $10? If only 10 are working, the other 90 usually have no choice except to live off government. Those 90 living off the government produce nothing. If they were working they would be producing, which adds to the economy. As the economy grows, so will, eventually, their wages.

Each year thousands work apprenticeships for no pay. The left says this isn't fair, yet people are willing to work for little or no pay. They do this because it is an investment in the future. They will take what is learned in that apprenticeship and apply it to a future job that pays more than they might have earned otherwise.

Now back to my minimum wage job. If I had chosen to drop out of school and stayed with that employer, and if I put forth effort, I would have worked my way up to possibly being a manager. Destiny was in my hands, not one made by government. The old adage that we must crawl before we can walk can be applied to all aspects of life. Even the low wage fast food worker is learning skills that will pay dividends later in life.

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