Unseen Destruction: Doubling the Minimum Wage
This article was written by guest-author Nathan Payne.
Ever since McDonald’s released their comprehensive “how-to” guide on surviving on the current $7.25 per hour minimum wage, people have (predictably) thrown their arms in the air and demanded a raise in minimum wage. At first glance, this may seem fair. After all, looking at their chart, they assume that you are working two jobs, and after all of that hard work, they also assume that you don’t need heat. This is an injustice, right?
This conception of injustice is based on the premise that minimum wage jobs are the only jobs that people can get. Minimum wage jobs are meant for teenagers or people with limited skills; a temporary stepping stone in the process of attaining further skills while still bringing in some income. Minimum wage jobs were not meant to be full time careers for anyone.
Another misconception by those that are crying for $15 per hour (!) for minimum wage is that somehow McDonald’s or any other minimum wage-paying company somehow owes them employment and a greater livelihood. This is not so! Businesses are not philanthropic entities that exist to simply “create jobs” and make everyone happy. They are there to create a product and above all else, make a profit. If they could do it without any employees whatsoever, they would. Employee wages are an expense, and businesses are only willing to pay people for the level of skill that they believe will compensate the business, with a little extra on top for profit. When you acquire employment, you are selling your time and skills for a certain price. Your time is a commodity just like any other, and businesses are willing to pay you for it. If a business is not willing to pay more than a certain amount for your time, then they do not think that they can get more than $X per hour profit out of you. It’s simple: more skills equals more pay. No skills equals very low pay (or none at all).
The implications of nearly doubling the minimum wage would be catastrophic. Let us say that those fighting for this increase get their wish. What would happen to those within businesses that are NOT making minimum wage? Perhaps an employee started out at the bottom, making $7.25 per hour. He provided good service, acquired skill and expediency at his job, and was taken notice of by his superiors. A year later, he is promoted to manager, now making $15 per hour. How do you suppose he would react now that he has seen that those underneath him are now making the same wage as him for only complaining? He has two options at this point:
1. Do all of the extra work and take on the extra responsibility that comes along with being management for the same pay as a new guy on the job, or
2. Quit and find an easier job making the same pay he was before.
Why would this manager keep his current job? What motivation would there be to work harder and get the exact same pay as his inferiors? Unless he genuinely enjoyed the specific tasks he was given, there is no motivation.
A doubling of the minimum wage also has other consequences for the business. If a small business is being crippled by the wage, the irony is that those fighting for the increased wage will most likely get laid off in order to keep wage expenses down, or the business will have to close its doors for good. Now, those who were previously making $7.25 per hour are making $0 instead of $15. The previously employed are obviously worse off now than they were before.
Some may argue “But big businesses like McDonald’s can handle the raised wages! They make enough money that it would hardly even affect them if minimum wage earners made double the amount!” This is false as well. Let’s look back at the manager mentioned in the previous example. He is about to quit his job because his inferiors are now making the same pay as him. But McDonald’s cannot just allow all of their managers to quit; they are necessary to keep things running smoothly. So what can they do? Raise the MANAGER’S pay the same amount that the minimum wage was raised, in this case, $7.75. So now, not only are “basic” employees making $15 per hour, the managers, in order to be motivated to stay employed and have a proportionally “fair” wage, would have to be paid $22.75 per hour. This same process of giving everyone a $7.75 wage increase would have to be given to every employee all the way up the corporate ladder in order to remain fair. This would have a definite impact on every business, no matter how large.
There are numerous other detrimental effects drastically increasing the minimum wage would have on the economy, and it seems that yet again the unseen aspects of economic intervention go ignored. In conclusion, doubling the minimum wage is a big loss for nearly all employees, and a big loss for all businesses.
If you enjoyed this article, you can follow Nathan at his blog “The Yellow and the Black” http://ankapistan.wordpress.com/