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Minimum wage increase impact

May 16, 2013
The Journal

To the editor:

In a recent letter to the editor, the writer claimed that increasing the state minimum wage would "raise many people from living in poverty." He also claimed that such an increase "could result in an increase to employment." I would like to respond to these claims.

The writer's first assertion assumes that those who receive minimum wage are living in poverty and that they will have difficulty rising from poverty unless the state mandates a wage increase. Is this assumption correct? Consider this:

A large percentage of minimum wage workers are young people who have just entered the work force for the first time. They are in their late teens or early twenties and are not yet living on their own. They are not necessarily living in poverty; they are living at the economic level of the household of which they are a part.

Furthermore, statistics show that most people who begin a job at minimum wage remain at that wage level for less than two years. As they gain experience and become more productive, they receive higher pay at their current job, or they move on to a different job where their increased productivity results in higher profits for the owner and increased pay for the worker.

However, the state can short-circuit this process by raising minimum wage to a level where it is unprofitable for an employer to hire anyone but an experienced worker. The employer may still hire someone at that wage level, but he will not hire the inexperienced person. An increase in minimum wage works to the disadvantage of the inexperienced worker. It may prevent him from getting his first job.

The writer's second claim is that an increase in the minimum wage could result in an increase in employment. He argues that higher wages, when spent, increase demand for goods and services, resulting in more demand for workers at all levels.

This claim, however, assumes that employers will make no adjustments, but will continue to hire as before, only at the higher rate. This assumption is totally unrealistic.

When business owners are faced with a significant increase in their labor costs, they must consider all available options that may allow them to remain profitable. New and better machinery may be less expensive than retaining the current workforce level. Relocating to another state with lower labor costs may be an available option, or working current workers longer hours instead of hiring inexperienced ones. The owner also has the option of closing the business entirely.

The bottom line is, this imagined state-wide economic benefit of raising the minimum wage is contingent on employers continuing to hire minimum wage workers at the current rate. Given the alternatives available to them, that is unlikely.

The more likely result will be chronically higher rates of unemployment among those who would like to get a start in the working world, with no positive impact on poverty or the state economy.

Michael A. Thom

New Ulm

 
 

 

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