Help Me Understand the Minimum Wage

Note that I’m posting this a day later on OD than Prosebox since OD wasn’t usable for me last night. I’m not sure that much of anyone reads here anymore anyway (ok, ok, except for you IceGurlie). It actually sorta fascinates me that some people do still manage to use the site. But, anyway, here’s the entry.

So, there is a big push to increase the federal minimum wage and I’m guessing that the US will see something like a 40% increase before much longer. Such an increase is very popular politically, as most folks seem to assume that it’s only fair that people are paid a “living wage.”

However, as someone who works in a business and has some influence on hiring decisions, it seems intuitive to me that by forcing employers to pay employees more, employers will be less likely to hire employees and may lay off some as well (and thus unemployment will increase). Granted, given that such a small percentage of workers work for minimum wage to begin with, the difference that minimum wage laws currently make on unemployment levels and the economy in general is probably negligible. But increasing the minimum wage still clearly seems like bad policy to me and it’s interesting that so many people vehemently disagree with that, including some economists.

I sympathize with the thought that it isn’t fair that people have to do work for such little money. However, I sympathize even more with a worker who needs a job and is now denied the opportunity because employers are being forced to pay more and can’t afford the marginal cost. Jobs aren’t going to “just be there” no matter what the minimum wage is.

I work at a small business and I always calculate the costs of hiring a new employee before making a recommendation. We need a lot of data entry done at our job and there is a regular debate on whether it will be worthwhile to hire an extra employee to help keep up with work flow. If you raise the cost of hiring that employee, then it’s more likely that we’ll decide not to hire someone and just manage with the workers that we have. I can’t imagine that we’re the only business in the United States that operates that way.

So following this rather basic logic it seems very clear that minimum wage laws take away jobs from the workers who could afford it the least. Granted, not every worker currently working at the minimum wage will lose their job if there’s an increase – many companies will find that the workers are worth the extra cost and elect to keep them. But if 90% of workers get a $3 per hour wage increase and 10% of workers lose their jobs entirely, is that a good thing? Wouldn’t that just increase the income inequality that is such a prevalent issue already? While at the same time clearly causing a loss in efficiency for the whole economy?