Praise for the new, higher minimum wage reveals a nonexistent understanding of the basic functioning of a free market economy in Congress and among voters. Instead, it shows the Democrats’ commitment to choosing solutions that appear on their surface to be the easiest, and the public acceptance of such policy making. Acclaimed as a long-awaited reprieve for the poorest, hardest working laborers, the increase in the minimum wage actually has little effect on this stated target other than inflating the cost of goods they buy. Forty percent of American workers are salaried, and of those that are paid by the hour, only 2.5 percent make the federal minimum wage or less. Who makes up this minute fraction? Young people, most often high school and college kids supplementing the allowances they receive from their middle- and upper- class parents. Indeed, 60 percent of those earning the federal minimum or less work in restaurants and bars where the tips they receive — usually untaxed — account for the majority of their take-home pay. These are those “unfortunates” given a boost by the Democratic Congress. The low-income families are not making minimum wages and will see a negligible benefit, if any. Mostly, they will see their incomes going shorter distances as business owners raise prices to recover the profits lost to wage boosts.
The economic law of supply and demand does not cease to operate in the labor market and the fact remains that if something costs more, people will consume less of it. Thus if a worker is only generating $5.15 an hour in capital and the government legislates the business-owner must now pay him or her $7.15 an hour, the owner of the business must then cut the number of employees, or raise prices substantially enough to generate the additional capital necessary to make up the wage differences. Furthermore, whereas business owners often choose to pay better employees more or reward long-term employees with incremental wage raises for their months or years of services, a mandate that stipulates they must pay all employees at least a specified amount acts as a disincentive for employers to continue such practices. As a result, the more experienced or harder working employees are no longer rewarded with the small business they once were and seek employment elsewhere where these types of incentives are given. This inevitably means the worse, less-motivated employees stay, meaning the business does worse, profits decline, the number of workers varies directly and more people lose their jobs.
In other cases, if there is more than one class of worker — with many making minimum and others staggered at levels of a couple dollars higher, etc. — the employer is forced to raise all wage levels to maintain the hierarchical proportion, often doubling or tripling the cost of labor. Again, given the limited options to create more profits — raising praises or dropping the number of people employed –a lose-lose situation is created. Because those minimum wage students are the cheapest to keep on, they are often forced to let go of those at the higher wage grades, often representing the struggling new immigrants, single mothers or independents trying to put themselves through school. If it’s the illegal or undocumented workers that you think this bill is going to help, you are really not thinking at all. Do you think the neighbor hiring José off the street feels compelled to adhere to the recent legislation by Congress? Not so, because migrant workers are usually are given a flat rate for a job virtually unrelated to hours.
Still think this great wage hike is what America needed arriving at long last? Think again. The people that lose are not the owners of large corporations, CEOs and executives. Their profit margins are in the millions and can sustain wage increases of this kind. The people that win are not those low-income families or immigrants. The latter are the losers — the losers of their jobs, the losers of their ability to compete. The self-employed small business owners are another group of losers as well. While Apple has no problem tossing a few extra bucks to their store staff and factory employees, the owner of Eclectic I.V. and your favorite Goleta coffee shop do have a problem. Their problem is your problem because it means you, regardless of your income or lack thereof, must pay a higher price for the same thing in order that they keep their employees. If prices do not change it simply means that employees were probably let go.