Against Raising the Minimum Wage

Kanan Patel

Macroeconomics essay

July 10, 2015

Against Raising the Minimum Wage

When was the last time a "value" meal from McDonald, let alone any other fast food chain, did not cost five dollars or more? When was the last time premium gas was under a dollar a gallon? It's hard to remember, isn't it? Wouldn't it be great if everything cost a nickel, like back in the good ol' days? According to the laws of economics, it's not logical for things to have gotten more expensive competition should drive prices down. Then why have prices continued to rise over the years? The continuing demand of more money for less work has forced to raise the minimum wage innumerable times in the last half century, which results in higher prices for the rest of us. Another raise in the minimum wage would, as all the others before it, raise prices for consumers, which would again result in another demand for a raise in the minimum wage. It's a viscous cycle that must be stopped before it loses control.

Obama once stated, “After 14 months since I’ve called on congress to reward the hard work of millions of Americans like the ones who we have here today to raise the federal minimum wage…”(1). The debate over raising the minimum wage has been a hot topic after President Obama explained in his 2014 State of the Union Address that he intends to raise the minimum wage from $7.25 to $10.10 per hour, an increase of over 40 percent (2). While the President and his supporters claim that this increase would greatly benefit the economy and result in no loss of jobs, the opposition claims that this would be detrimental to minimum wage employees.

Not only does a raise in minimum wage result in a raise in the cost of living, it also causes the dismissal of hardworking people who are happy with their current income. When the firing axe starts to fall, seniority often determines who goes and who stays. The more a single employee costs a business an hour, the fewer employees the business can afford to employ an hour. This results in the dismissal of employees to compensate for a raise in labor costs, which creates a smaller staff, which results in firing employees. Below is a graph of the unemployment rate after raising the minimum wage. To also get a better perspective, a map is also shown, of which specific states (highlighted in red) were largely unemployed from raising the minimum wage.

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In an economical explanation, the government regulated the labor market by setting a minimum wage that firms must pay their workers. Therefore, we have a price floor. If the equilibrium is higher than the minimum wage (price floor, then the minimum wage has no effect on the market. If the minimum wage is below the minimum wage, then there will be a surplus. At a high minimum wage, demand for labor would be lower than supply. This results in unemployment, meaning that not every worker is willing to work for the minimum wage will be hired. The graph below helps give a better visualization about the affects of minimum wage changing.

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This results in fewer hiring, making it difficult for employees to find a job. If businesses must pay their minimum wage employees more, they cannot afford to hire as many employees. According to a Federal Reserve Bank of Chicago study( page 1), “10 percent increase in the minimum wage lowers low skill employment by 2 to 4 percent and total restaurant employment by 1 to 3 percent.” Or even instead of hiring fewer employees, a company may start outsourcing jobs to employees that at willing to work for much less than $10.10 per hour, resulting in fewer jobs for Americans.  If minimum wage increases, overly qualified individuals will also be striving for minimum wage positions, pushing younger, inexperienced workers out of the running and robbing them of their opportunity to gain experience and knowledge to build a resume for themselves and enter the workforce.