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Economics 101
The Minimum Wage

April 11, 2016

Recently California decided to raise its minimum wage to $15/hour by 2022, phasing it in a $1/year until it reaches $15.  New York is on the verge of doing the same.  Similar moves are underway in other states like Oregon and Washington. What do they have in common?  Their legislatures and governorships are controlled by “progressives” or socialists [people like Hillary Clinton or Bernie Sanders] who apparently lack a sound understanding of basic economics. 

It concerns us that there are a lot of people in our country who also favor increasing the minimum wage while not realizing what will happen as a result.  The impact will be fewer jobs available and especially employment for first time job seekers, the poor, and for low skilled workers. 

Consider this; if you’re trying to sell a house, the higher the asking price, the fewer prospective buyers you’ll have.  The same is true for employment – the higher the wage rate, the fewer prospective employers there will be. 
 
Businesses are not welfare agencies; they’re in business to make a profit. Profit is not a bad thing and it’s the lifeblood of any business.  The vast majority of employers are small businesses. Government-mandated wage rates handcuff these businesses many of which are ma and pa operations.  There’s a limit to what they can charge for their goods and services.  Just like with selling a home, if you charge too much there’ll be no buyers.  They need to keep their costs (overhead, wages, etc.) down just to stay viable.

With government-coerced wage rates, businesses may need to increase their worker’s productivity – by giving them more responsibilities – and reduce the number of employees and/or hours in order to survive. 

Although it's obvious to us that artificially forcing wages up through minimum-wage legislation causes low-skilled workers to lose their jobs (or not to be hired in the first place), this clearly isn’t obvious to many of our fellow Americans. 

Politicians behind the minimum wage movement claim that it’s needed because of the greed and profiteering of business owners.  But where do we see most minimum wage jobs?  It’s in the highly competitive retailing, food and service industries. These businesses aren’t raking in excessive profits and they’re doing well to earn enough to stay in business.  If their profit margins fall even a little (because of artificially-forced wage rates) investors cannot afford to keep investing and this may cause the business to close and those formerly employed to be back looking for an ever decreasing number of employment opportunities! 

In order to survive, San Francisco is seeing many local businesses moving toward automation in order to reduce increased cost from paying workers more.  Self checkout stations at grocery stores and kiosks in restaurants for ordering food are becoming more frequent. With less services being provided by actual workers, less employees are needed.  This keeps costs down, but also reduces employment opportunities.  So with governments forcing even small businesses to pay artificially higher wages they’ll discover the unintended consequences that economists agree will be inevitable.

Bill, Mark, and John