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Minimum Wage: More Harm than Good

December 19, 2013 J

By Wesley Coopersmith

Earlier this month, President Barack Obama called for a federal increase of the minimum wage in an effort to help struggling workers across the country. The President delivered his speech in Anacostia, Washington D.C., a poverty-stricken neighborhood plagued with high unemployment. Originally planned to be voted on this month, the Senate will wait until January to take up this piece of legislation.

Although the President may have good intensions, raising the minimum wage does not help low-skilled and unemployed Americans. Rather, it does more harm than good by increasing the cost of low-skilled labor.

For a government policy to be effective, it must actually benefit the individuals it is supposed to help. In his speech, the President stated, “If you work hard, you should be able to support a family.” But many minimum wage workers are not working to support a family. According to The Economic Policy Institute, a left-leaning think tank, less than 50% of those receiving the minimum wage are full-time workers. This is because many minimum wage workers are teenagers or part time college students. In fact, 50% of minimum wage workers are 25 years old or younger.

While advocates of minimum wage hikes claim they benefit low-income individuals, many minimum wage workers do not come from low-income families. Of those affected by an increase in the minimum wage to $9/hour, just over half come from families who make $40,000 or less per year. Attributing to this statistic is the many teenagers/young adults who come from generally better off families.

In short, an increase in the minimum wage only affects half of those it is attempting to reach. But, does a minimum wage hike positively affect the half it is trying to help?

In this same speech, the President claimed, “We all know the arguments that have been used against a higher minimum wage. Some say it actually hurts low-wage workers — businesses will be less likely to hire them. But there’s no solid evidence that a higher minimum wage costs jobs.” But is his claim true? The Washington Post Fact Checker didn’t think so and gave Obama’s claim two Pinocchio’s.

In fact, the most current research shows that a higher minimum wage does increase unemployment; however, the more important economic reality is that a higher minimum wage increases the cost of low-skilled labor. Businesses pass this cost off in a variety of ways. The higher cost of labor may translate into higher unemployment for low-skilled workers, reduced hours, loss of benefits, a higher work demand, or even higher prices for the goods they supply.

In each of these ways, it is not the wealthy who are hurt, but rather low-skilled workers who are already employed or who are looking for employment. It is the minimum wage worker who gets laid off, whose hours is cut, whose work hour-flexibility is taken away, or who pays higher prices at cheaper stores that they are more likely to shop at.

One real life example of the negative effects of raising the cost of labor can be seen at the local grocery store. More and more grocery stores are discovering that self-check-out machines are less expensive than hiring a cashier. Increasing the cost of labor only further incentivizes businesses to invest in technology instead of people. It’s no surprise that the government cannot simply wave its magic wand and force businesses to pay higher wages without any negative side effects.

Even Chairwoman of President Obama’s Council of Economic Advisor, Christina D. Romer, agrees. In a recent New York Times article, Christina argues that raising the minimum wage may harm the people it is supposed to help. Discussing the fact that higher labor costs often cause higher prices, Christina writes “Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help.”

Economist Thomas Sowell sums it up well: “The net economic effect of minimum wage laws is to make less skilled, less experienced, or otherwise less desired workers more expensive — thereby pricing many of them out of jobs.”

A minimum wage hike is simply an ineffective way to help Americans rise out of poverty. It only reaches half of those it is intended to help and not in a positive way. Increasing employment opportunity gives low-skilled workers the best chance of finding employment and climbing up the economic mobility ladder. Raising the minimum wage does more harm than good.

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