Well that was quick! I never planned such a quick follow up to my post on this subject just a few weeks ago. But no sooner did the government kowtow to the demands of minimum wage lobbyists than the free market took over, as it always does, and now we’re seeing the devastating effects of raising wages on demand. The very people that the minimum wage law was supposed to help are being forced out of the labor market altogether. As with most of these man-made, “feel good” policies, the unintended consequences rear their ugly head and bear out the strength of capitalism. You just can’t artificially raise wages in a terribly slow-growing economy like we have had the past 8-10 years. The cash flow just isn’t there. Yes, everyone is hurting from the slow growth, but to simply stand up and demand higher wages is ludicrous. It’s a false band-aid. Let’s take a look at what’s happened in just the last few weeks.Wendy’s fast food chain quickly developed a viable solution to offset the severe drop in profit from forced wage increases. Kiosks. Yup, good ol’ automation and technology will now replace the jobs of workers at over 6,000 Wendy’s stores; the very low-wage workers that raising the minimum wage was to benefit. So now rather than workers making $7.25 per hour, they’re out of a job and making 0. After an initial investment, kiosks cost store management nothing. Good job politicians! Macdonalds is also considering the kiosk route to reduce labor costs.
How many millions will be affected by this law? Some experts speculate that 30-50 million jobs will be affected by the year 2020 by artificially raising the minimum wage in a weak economy. Those companies maintaining human labor force are only keeping their best and most productive workers while firing the others. Again, hurting the most vulnerable and low skilled.Despite the constant drumbeat from politicians in Washington to raise the minimum wage, a recent study was conducted by Douglas Hoktz-Eakin, president of the America Action Forum and former director of the Congressional Budget Office, and Ben Gitis, director of labor-market policy at the American Action Forum. What they found was that raising the minimum wage rewards highly skilled workers and punishes less productive workers who were fired to compensate for lost profits. Doesn’t it make sense? Raising the minimum wage bites heavily into a business’s profit. Most businesses run on very tight margins so they have to make adjustments somewhere. It makes total sense to let less productive workers go and reward the better-skilled workers with the wage increase.
So who benefits from raising the minimum wage? Well, obviously, those few who get to keep their job see some benefits, except that they may now be in a higher tax bracket. But the ones who truly win are the feel-good politicians and lobbyists who falsely claim victory for forcing bogus legislation into law. They can strut around and claim victory for looking out for the “little guy” when in actuality, those are the very people they’re destroying.
“While a minimum-wage hike would benefit millions of workers with higher earnings, it would also hurt millions of others who would lose earnings because they cannot attain or retain a job. Our estimates show that raising the federal minimum wage to $12 per hour by 2020 would affect 38.3 million low-wage workers. Using our central estimate, we find that raising the minimum wage would cost 3.8 million low-wage jobs. In total, income among low-wage workers would rise by, at most, $14.2 billion, of which only 5.8 percent would go to low-wage workers who are actually in poverty. (American Action Forum, July 27, 2015)
So how do we remedy this crisis? Why not just raise the minimum wage to $100 an hour and be done with it? A ridiculous proposal. But if the money ain’t there, the money ain’t there. The amount is irrelevant. Simple.
Here’s what we can do. Pay special attention to local and national politicians running for office and their views on the economy which is the number one concern and priority driving this year’s election. Many things hinder a robust economy like too much government regulation which discourages new business startups, artificially raising and lowering interest rates, artificially injecting currency into the market to prop up economic growth, etc. Listen to politicians and determine who best reflects your views. Economic growth ebbs and flows, dips and swells, which if not allowed to occur naturally, proves detrimental to economic growth. Manufactured minimum wage hikes are a great example of this.
Common sense and a little education will go a long way. You owe it to yourself and your kids. We can have a great economy again and truly help the poor and low-skilled by applying the true laws of natural economic growth. Discover these for yourself and then educate someone else. Now that’s a feel good policy.