Mo’ money, mo’ problems.

July 24, 2008 at 6:06 pm Leave a comment

As the federal minimum wage increases to $6.55 today, I imagine I can hear millions of business owners screaming in agony.  Many people (especially Liberals) would argue that everyone in the country deserves to make a “living wage” and that even with today’s increase many people are still not making enough to make it out of poverty. 

The problem with increasing the minimum wage is that business owners that were paying their employees $5.15 last year are now paying those same employees over a dollar more per hour.  Most workers at the minimum wage level are teenagers with summer jobs or people with very few skills.  An increase in the minimum wage is a mandated raise for these workers, whether or not they’ve actually gained new skills or increased their productivity. 

Alan Greenspan famously recommended the abolishment of the minimum wage on grounds that it would exclude unskilled teenage workers from gaining the necessary experience to succeed in the work force.  The 1923 case Adkins v Childrens Hospital deemed the 1918 legislation establishing a minimum wage unconstitutional (it was later overruled, obviously). 

The real point here is that increases in the minimum wage hurt workers that are affected by the minimum wage.  If an employer doesn’t feel that a hire will provide $6.55 worth of productivity, then he or she has two choices: either do not hire the person and save the money it would take to train them to output their salary’s worth of production, or add those duties to another position and hire an already trained worker that is guaranteed to work to their expected output.

Eliminating the minimum wage would allow unskilled workers to be added to a payroll at a wage level proportional to their productivity, and would allow them to gain work experience and move up the pay scale as they gain new skills. 

Federal minimum wages really only apply to half the country, as most states have their own that are much higher.  The same problems apply, and many businesses as well as unskilled workers are being unnecessarily adversely affected.  Unfortunately most people feel that wage equality is the moral thing to do, and that it’s necessary to keep people out of poverty.  It really has no place in a capitalist system, and does more harm than good to the people who supposedly need it.

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Entry filed under: Economics, Politics. Tags: , , , .

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