In a little over a week the Federal minimum wage requirement will rise to $7.25 per hour. This is the result of the Fair Labor Standards Act, passed in 2007, that put the minimum wage requirement on an upward path from it's then level of $5.15 an hour. This wage hike will have serious consequences, including delaying economic recovery. It also brings to mind a number of questions. Will it have a greater impact on small businesses than larger ones? Too great of an impact (i.e. - forcing many to close)? What demographic group will it impact the most? And is a minimum wage even constitutional?
A wage or salary is a measure of how much an employee is worth to a business. There is a reason that the guy cooking burgers at McDonald's is not making $100,000 per year like the pharmacist does. Anyone can cook a burger. Not everyone can tell you that it's potentially dangerous to take both simvastatin and amiodarone at the same time. To really get a grasp of the issue it is important to understand that $1 per year (for a full time employee) equates to about $2,000 in wages. That number is calculated as follows: 40 hours per week x 52 weeks per year x $1 = $2,080 (keep it at 2K to keep the numbers easy). The previous minimum wage, $5.15 per hour translated to about $11,000 per year. $7.25 per hour is around $15,000 per year, an increase of $4,000.
Let's say a small business has ten employees, four of which are at minimum wage. The employer will now have to pay an extra $16,000 per year in wages. The employees didn't earn it. The government is requiring it. If they did earn it the mandate completely undermines their merit based achievement. The business owner might have been getting ready to say "great job, I'm giving you a raise, because you are a fantastic employee." Instead the employee simply watches CNN, sees that he's getting a government-mandated raise and gets none of the verbal and psychological reward that he worked so hard for. He then thinks that the only way he will get a raise is if the government requires it. He sees his hard work as inconsequential, and may start to slack off a bit. The Wall Street Journal notes that "two of every three full-time minimum-wage workers get a pay raise anyway within a year on the job." That's 66% of the full time minimum-wage workforce that will not get the positive feedback and subsequent merit-based raise that is so vitally important to an employee's development.
What if the employer wanted to hire someone else? At $5.15 per hour he or she could have added an employee and given the other four employees a raise. With millions of people currently out of work that extra job could really mean something for someone trying to feed her family. Multiply that by the tens of thousands of small businesses throughout the U.S., and it really starts to make an impact.
What I really want to know is how someone cannot manage to make more than minimum wage after high school. Government officials talk about the "right" to a "living wage" all the time. If you cannot make yourself worth more than $5.15 an hour to an employer without a government mandate then it's time for some serious self-examination. I was making more than minimum wage while I was still in high school. My job didn't require much education, so crediting my parents with sending me to private schools is a non-factor. It was simple work ethic and attitude. Anyone could have started where I did and worked their way up to store manager without ever having set foot in a college classroom. I have seen many people do it. Most people with a high school education could start flipping burgers at McDonald's at age 16 and eventually learn how to manage the entire restaurant.
After college I worked in a restaurant for a while. One of the guys that worked in the kitchen started as a dish washer. He has since received three or four promotions. He didn't go to college. You can get education at work. In fact, many people would argue that you learn more outside of a college classroom than you do in one. Yes, college is beneficial, but it's not the only way to success. Telling an employee that he is automatically worth $7.25 per hour simply by applying for a job does nothing to advance America. It is actually a step backwards. The true American dream is one of starting at the bottom, with nothing, and working your way up to the top. A minimum wage of $0.00 per hour would allow more people to truly live it.
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The question of the minimum wage has always generated a great deal of debate. If one looks at basic economics one can see that it is not a good idea. First take goods, if the price of an item is set artifically high then the people who make that item tend to make more hoping to benefit from the increase in price, however at the same time the people buying said item buy less because of the increased price causing a surplus of that item. The reverse happens if the price is set artifically low creating shortages. In the case of setting wages above the free market level this means,as you said, fewer people will be hired. However just as important the item produced or the service provided will increase causing a corresponding decrease in demand for that item or that service and those who continue to buy said item or use that service will pay more, hence having less money to use or buy other services or items. Its like the old broken window thing, "a broken window is bad for the home-owner, but good for the glass company. I suppose the bottom line is this---politicans will enact laws that favor groups that tend to support them at the expense of those groups who do not. Interfering in the free market is never, I repeat never good---just to many variable for the government to understand and attempt to make adjustment for.
ReplyDeleteFound your blog via twitter--following. Visit me sometime at TOTUS my is a young blog, but I've worked it hard and now have a PR4 ranking. When you visit my site if you like what you see there drop off a comment to that effect and I will add you to the blog roll there, hoping you will do same for me. I will help us both in time with google as external links are important to them and eventually drive more visitors to your site. We all enjoy having readers and getting comments. I see you put work into your postings and that good. Sometime I do the same, and sometime I import articles from other sources. I also do satire as I like to poke fun at those on the political scence, particularly Obama and the left. I'm a retired history and political science teacher living in the deep south (south Mississippi). The heart of red country.
I love it when the Democrats criticize existing minimum wage as not being a "living wage" for a wife and 2 kids. Yeah, so what? Then he guy flipping hamburgers should be motivated to improve his work ethic, experience and education in order to increase his value so HE can support his wife and 2 kids and not ask some small businessman to do so at the expense of someone else having any job at all.
ReplyDeleteSpeaking of the Minimum Wage Ron above stated: "If one looks at basic economics one can see that it is not a good idea." Ron is of course correct and it is the ONLY valid basis of evaluation, but of course that would neutralize the "debate" and "political opportunism."
I helped form a company on behalf of my Brother-In-Law and friend that they invested $175,000 the government didn't get in taxes. If they had gotten it in some "fair share" scheme of the Democrats then the government could have made entitlement payments to about 8-10 families for one year, but instead we created "permanent" jobs for 20 employees representing 20 families. [Point, Chapter & Verse] ............steve
Haha, nice shout out to Jennifer bro.
ReplyDeleteYou are nuts. I imagine the way you made the minimum wage job work is that you had your nice and warm parents house to live at and eat free food. I would bet money that you could not live 3 months on the streets with a wife and 2 kids to support, working at minimum wage, without your obviously wealthy family.
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