“Ask President Obama,” responded my economics TA to the question of why the United States has minimum wages. Even though many on this campus might disagree with him, common sense prevailed, and he, like many others, has realized the futility of implementing a minimum wage.
Often, people try to make the argument that in order to be fair we should be mandated to pay everyone a “decent wage.” While this logic in and of itself does not seem faulty, it can have drastic consequences on the economy, the well-being of those that it is meant to help and the well-being of those whose wages are not affected by the implementation of this restriction.
Even though it may seem counter-intuitive, a minimum wage can hurt those that it is supposed to help. For example, if an employer is forced to pay his employees more, somehow he or she must make up for the higher wage expense. The most common way to accomplish this goal is to fire some of his or her employees. Therefore, when a minimum wage is implemented in an economy, unemployment is expected to rise. Since a higher number of lower-wage workers will be unemployed once such a price floor is in place, the misery of these displaced workers will undoubtedly increase and be felt throughout the nation. The whole idea is backed up by the basic concepts of supply and demand, but I will not bore you with the details.
Likewise, this increase in the minimum wage will also hurt those whose wages will not change as a result of the raise. My economics professor once told me that 70 percent of the cost of anything is labor. If this cost is augmented, it is common sense that the price of many products would also increase. This would mean that any consumer who wants to purchase a product made by minimum wage workers would be worse off as a result of this change. Therefore, a greater minimum wage would hurt those workers whose wages increased and also those whose wages did not change. Whether the person is well-off or barely making it, a greater minimum wage would cause them harm.
Despite these arguments, many politicians and regular citizens alike still support setting a higher minimum wage because they argue that it would spur economic growth. This is because larger paychecks lead to people having more money in their pockets, which therefore encourages spending. While I acknowledge these short term effects, eventually unemployment and a higher cost of goods will catch up to these brief positive effects the larger minimum wage has and cause more misery than they had previously alleviated. In fact, a minimum wage is so detrimental to an economy that Milton Friedman, one of the most prominent economists in history, once said, “The consequences of minimum wage laws have been almost wholly bad, to increase unemployment and to increase poverty. In my opinion there is absolutely no positive objective achieved by minimum wages.”
So, we ask again, what are you thinking, President Barack Obama? Why do you want to raise the minimum wage?
