3 Things You Haven’t Heard about Minimum Wage

minimum wageEarlier this year, President Obama made a push to raise Federal Minimum wage from $7.25 to $9. About that same time, fast food workers in Wisconsin were picketing for $15 minimum wage. Currently, Wisconsin Congresswoman Gwen Moore is advocating to raise minimum wage to $10.10.

At first glance, it sounds like these folks are all advocating for the little people, but could it be that these policies would actually hurt the little people? Here are some things to think about as you consider your position on the minimum wage issue:

1. Raising Minimum wage simply raises prices on good and services – If McDonald’s has to pay their people more to run the cash register, they are simply going to pass the increase along to the customer in the form of increased prices. If minimum wage goes up 10%, forcing the price of a burger to go up 10%, the minimum wage worker does not have any more buying power after their raise than they did before. It is a net wash. The primary change is for everyone earning more than minimum wage, their buying power goes down!

UPDATE: 9/19/13 – Just found this awesome video of Economist Milton Friedman talking about this very topic using McDonald’s as his example in an interview with Phil Donahue in 1979! Worth your time…

2. Minimum Wage jobs are not supposed to be long-term – News reports have argued that minimum wage needs to be raised because one simply cannot support a family on current minimum wage. This is true and unfortunately there is no other way to slice it. Minimum wage jobs are designed to be a starting point, the first rung on the ladder. Compensation is about value. Its about supply and demand. Those who want more compensation have to figure out how to provide more value, either through gaining new skills or by simply working harder than everyone else. This is true with minimum wage workers all the way up to the CEO. Compensation follows value. Business will recognize value and compensate accordingly if for nothing else than for self-preservation.

3. Raising minimum wage hurts teens – From the standpoint of the business owner, there comes a point at which an inexperienced worker simply does not pencil out for the risk and effort of training that is involved. With a low minimum wage, teens are attractive to business because they are less expensive than other more experienced workers, therefore businesses are more willing to take the risk of hiring an inexperienced and unproven teenage worker. However, when the teen is just as expensive due to an increased minimum wage, the incentive to hire the teen is gone, resulting in fewer entry level jobs available to enthusiastic teens just looking for their first opportunity.

What are your thoughts? What comments do you have that would balance the perspective represented above?



Photo credit: WisconsinJobsNow / Foter / CC BY-NC

4 thoughts on “3 Things You Haven’t Heard about Minimum Wage

  1. Some good thoughts here. These are pretty fundamental business concepts, and I think that if they were more widely understood, there wouldn’t be as much of a push for these minimum wage increases.

  2. Common sense is not too common these days. While McDonald’s may be able to raise their prices, many small business owners will not and therefore those jobs will be lost. And if everyone raises their prices what have we gained except another round of inflation.

    • Good point about the job loss. This is a reality, especially full time jobs with the launch of ObamaCare, etc which incentivizes employees to keep employees under 30 hours, but that’s a whole new post…

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