Guest Columnist :
How bad could the war really be? - The Paranoid Pessimist
What is the Deal?
Do you need to buy a birthday, anniversary or holiday gift? Visit one of our affiliate sites.
October 27, 2002
What is the deal with the minimum wage?
By Jan A. Larson
According to a recent FOX News report, minimum wage activists calling for Congress to do something, i.e. raise the minimum wage, are frustrated that their efforts have not yielded results. Minimum wage activists continually claim that no one can support a family while earning the minimum wage. With that I will agree. I also offer a novel solution. Don’t have a family if you can’t support one. Of course there is no reason to deal with the root cause of the problem if you can treat the symptom. That is the American way, or at least it seems.
I don’t believe many will disagree that it is difficult to make ends meet on $5.15 per hour. (Some localities have passed local ordinances mandating a minimum wage greater than the Federal minimum wage.) It is tough to pay for a car and keep it running, pay rent, utilities and the cable TV bill. Forget about putting kids in new clothes or saving for their college educations, dining out, taking Caribbean vacations or driving a Jaguar.
A minimum wage earner must necessarily adjust expectations. Sharing transportation, housing and other expenses offers a solution. A better solution is to not make the minimum wage. Virtually no American citizen today need make the minimum wage for long, if ever. Step 1. Graduation from high school is the best defense against a life of minimum wage employment. Everyone can go to high school for free. Dropping out of school is a recipe for financial disaster. Step 2. Postponement of having a family until financially prepared. Supporting a family, especially as a single parent, before preparing to earn the money to provide for that family is patently unfair to children. The burden of supporting children may trap one in a situation that precludes taking the additional steps needed to move up the financial ladder. Step 3. Hard work. No matter one’s background or life situation, a dependable, hard worker will be rewarded. They are hard to find.
Minimum wage activists naturally advocate for more money. The problem with this approach is that is solves nothing. Sure it might help in the short-term, maybe a few months, but by then the effect of the raise has disappeared. Why? Because all of the businesses that employ minimum or near-minimum wage workers have compensated by either raising prices or reducing their workforce. Basic economics dictate that businesses operate so that they may return a reasonable profit to their owner(s). Competition ensures that those profits are not excessive. Any business earning excessive profits invites competition. As wage costs increase, other costs must be cut or prices raised. Raising prices, especially in a recession is very difficult for business owners. The inability to raise prices combined with higher costs is a formula for disaster. Instead of a group of employees enjoying their newly increased wages, those same employees may find themselves earning the real minimum wage, $0, if the business fails. Even in periods of economic growth, raising prices is inflationary and ultimately reduces the buying power of minimum wage earners.
Minimum wage earners are on the bottom rung of the economic ladder. They will be on the bottom rung no matter how high the minimum wage is raised. To understand the futility of raising the minimum wage, let’s examine the effect if the minimum wage were raised to $100 per hour. Surely everyone could work and support a family at such a wage, right? That works out to over $200,000 per year. There would be no more poverty and everyone would be rich, right? How much would a loaf of bread would cost if the minimum wage were $100 per hour? About $20. How much would a modest new car cost? $150,000. Despite their new found “riches,” those making minimum wage would still have a difficult time making ends meet. If anyone wants to live in that type of environment, I’m sure there are plenty of job opportunities in Argentina. Simply making the numbers bigger does not solve the problem and in fact, makes the problem worse.
The key to improving the lot of minimum wage earners is not achieved by raising the minimum wage, but through education and improving skills such that the skills that one does bring to the workplace are valued above $5.15 per hour. It is foolhardy to rely on the government to improve one’s lot in life. The amount one earns is proportional to the value he or she provides to his or her employer. Moving up the “ladder” may only be accomplished by hard work, education and improving one’s skills. Handing out more money to those who do not possess the education and skills valuable in the workplace may make for good politics, although apparently not this year, but does not change the economic forces at work in our capitalistic society.
Send feedback to the author.
The "What is the Deal?"column will appear from time to time on the Pie of Knowledge website. Guest submissions are welcome and encouraged. To submit an article to "What is the Deal?" click here.
To subscribe to the "What is the Deal?" mailing list and receive early notification when a new column is available, click here. The Pie of Knowledge will never, ever divulge email addresses to any third party for any reason unless so ordered by a court of law.
Contributions to the Pie of Knowledge are greatly appreciated.