Raise the minimum wage, lose your job
Raising the minimum wage to $15 will reduce the incomes of many low-wage workers by making fewer jobs available.
To be sure, an increase in the minimum wage does benefit many workers. It benefits not only workers who were paid below the new minimum, but also skilled workers who are already earning wages above the minimum. Proponents concede that some workers may lose their jobs, but argue that their losses will be more than offset by wage gains for most low-wage workers.
But there is also no question that many low-wage workers will have a harder time finding jobs if the minimum wage is increased from its current level of $7.25 to $15 per hour.
The goal of business owners is to make a profit, and to maximize profit they must charge a high enough price to cover the cost of production. If wages increase without a comparable increase in workers’ productivity and firms continue to charge the same price as before, they will find that some of the product they sold when costs were lower is no longer profitable to sell. Thus prices are likely to increase. But if firms increase prices, they can expect to sell less of their product than before.
Proponents of a minimum-wage increase argue that it will lower turnover and motivate workers to be more productive. This may happen in some cases, but if raising wages increases productivity and lowers turnover by enough to enable firms to earn as much or more profit as they did paying lower wages, firms will eventually figure out that it is in their interest to raise wages regardless of whether a minimum-wage increase requires them to do so.
For most minimum-wage workers, it is not likely that productivity will double if the minimum wage is doubled. In firms where productivity does not increase as much as the minimum wage increases, fewer workers are likely to be hired or retained. Recent research estimates that increasing the federal minimum wage to $15 would lower employment by between 3.3 million and 16.8 million workers.
Some employers, such as Wal-Mart, have politically supported an increase in the minimum wage, arguing it will raise workers’ purchasing power and thus demand for their products, making it possible for them to employ more workers. Raising workers pay without increasing their productivity, however, will not increase overall purchasing power in the economy. If workers as a group earn more, then owners of firms will earn less.
Most workers earning the minimum wage are not living in poverty. The Congressional Budget Office estimates that 35 percent of minimum-wage workers are from families earning incomes greater than three times the federal poverty level. Only about 20 percent of workers earning less than $11.50 per hour are from families with incomes below the poverty level.
For workers with a high school education or less, one of the best ways to get skills and develop good work habits is through training provided by an employer. Providing training is costly, however, so that the higher the wage, the less likely an employer will risk providing training to an unproven worker. With a lower minimum wage, more firms could afford to incur the cost of on-the-job training, so it would be easier for workers with limited education and experience to find jobs and gain marketable skills that would enable them to move up the ladder to better paying jobs in the future.
While more than doubling the minimum wage makes for a great political stump speech, the realities of such a move could prove to be not so great for the American worker.
Tracy Miller is an associate professor of economics at Grove City College and fellow for economic theory and policy with The Center for Vision & Values.