Wednesday, February 19, 2014

Minimum Wage Increases Drive Up ALL Wages AND Cost Jobs

When the minimum wage is increased it forces upward ALL wages above due to wage compression. When we increase the minimum wage from $7.25 to $10.10 (approximately a 40% increase!), that increases the wage of those at the bottom from $7.25 to $10.10. What about someone making $8? Or $9? Or $10? The law would require that they ALL be raised to at least $10.10. But is that enough for someone previously making $8, $9 or $10? Logically, of course not! Thing is, the compression doesn't stop there. ALL wages above the NEW minimum wage are also affected!

For example, what about someone with 5 years experience and making $10.10 before the minimum wage increase? Is ANY company going to leave their wage there so that they make the same as someone just hired at $10.10? Of course not. Their wage must be increased too. Let's say their wage is increased from $10.10 to $12.50 ... ie, a smaller increase of 'only' 24%. That seems more fair, eh? But what about someone with 8 years experience who was making $12? Now someone less qualified/experienced is making $12.50, 50 cents more than they do. What do you do about that? Raise their wage also to something like $14.40 ... ie, 'only' a 20% increase. Now, what about a person who'd been making $14 before the minimum wage was increased? Can't leave them making less than someone now making $14.40, right? And so on ... with EVERY wage above the new minimum wage.

So, we can see that when the minimum wage is increased, it's NOT just the wages at/near the bottom that get increased. It forces employers to increase the wage of most(!) hourly workers.

Let's examine the resulting impact on employers. If they're forced to give NEARLY ALL hourly workers an average increase of, say 20% (remember it's a 40% increase just for those at the bottom), That's a VERY non-trivial hit to a company's bottom line. It's a historical statistical(!) fact that minimum wage increases hurts employment. Companies either slow their hiring or fire people in order to stay profitable. Would we rather they go bankrupt and have everyone lose their job?

Even President Obama's own CBO understands these economic factors. These consequences are discussed in a new National Review article that references that CBO report.

All of the analysis above is not only common sense when one considers the larger implications but historical facts verify it. We can't keep doing these things and expect different results especially when common sense tells us it's nuts. We've got to think with more common sense and a longer view of things or we're going to allow our federal and state governments to ruin our economy. We can't keep letting those knuckleheads do all our thinking for us!