Once when I was young I asked my father why we couldn't just print more money in order to help the poor people. He, being a brave man, attempted to proceed through an explanation of inflation that might be understandable to an eight year old. At that age I could not understand all the in's and out's of the process, but I still understood the basic concept. It is impossible to add something to one part of the economy without seeing effects elsewhere; any economic policy needs to be look at from a 'total picture' viewpoint instead of just as a stand alone subject.
Unfortunately, this quick fix idea is often touted by two types of policy makers:
a) Those who have no concept of consequences of actions (Obama Administration)
b) Those who advocate any policy which leads citizens to greater dependency on government and government programs (Obama Administration and Congressional Democrats).
Just as printing more money seems like a good idea, but doesn't work in real life, raising the minimum wage, as good as it sounds, just doesn’t measure up.
There are a couple of things that occur in the economy when the minimum wage goes up. The first one is the loss of jobs (using history as an example, this is not the way to raise up the working class). Ever Since the Congress mandated the Minimum Wage Commission of the 1980's the consensus average estimate has been that raising the minimum wage by 10% increases unemployment by 2%. This creates a raise to loss ratio of 5 to 1, not too bad until we look a little closer.
Not every worker makes the minimum wage, in fact recent studies have shown that only around 1/5 of the workforce are minimum wage earners. The unemployment effect will, therefore, be concentrated in this group of workers (one fifth of the total workforce), further increasing the loss of jobs in this group.
The truly devastating effect of a minimum wage increase occurs when you consider the ripple effect that it creates. It is not just the loss of a job, it is the loss of opportunity for these newly unemployed individuals that will continue to affect our economy long after the initial effects of the wage increase have subsided.
Minimum wage jobs are often thought of as learning jobs. They allow employers to feel more comfortable giving someone a chance that they might not have otherwise. The loss of total jobs might only be 2% for every 10% increase, but the loss of opportunity for those newly unemployed people is 100%. How will these people gain the skills necessary to make them more valuable employees? Case in point, before the minimum wage was applied to teenagers in 1956 the unemployment rate for black teenagers was the same or lower then that for white teens. After it was put into effect the black teenage unemployment rate skyrocketed. We can only imagine what the future became for those newly unemployed black teens. The same could be assumed to have occurred in the adult population as well.
Those workers that are able to stay employed do not face as bright a future either. They will either have their hours cut (therefore stopping them from earning a greater income), or non-wage benefits slashed. The higher skilled workers who were making close to what the new minimum wage is previously will not be happy either (with good reason since their skills have now been devalued). The whole domino effect falls on top of the employer.
Employers will face a few choices; raise prices, cut employees (thus cutting quality and service) or go out of business. How many small to medium business owners who already run their operations on a shoe string will be forced to close?
In the long run the only people who will truly benefit from this increase are the shameless politicians trying to show the poor voters that they care. If these poor people lose their jobs because of it, they will most likely blame their employer, not their policymaker.
A politicians dream: Appear as if you are helping out the ‘little people’ and then when they lose their job, promise them that if you stay in office you will do something about those greedy politicians and business owners who have ruined their lives.
