Jake Dieterle ’19
Too often I hear talk, largely from millennials, that we should institute a higher and higher minimum wage. While I too would love to easily eradicate poverty, it is important to understand the economics behind such a faulty policy. For anyone interested in this topic, I would strongly recommend taking an Economics 101 class. The facts surrounding the effects of minimum wage might surprise you.
I understand the emotional appeal behind a minimum wage, but the reality is far different from expectations. Now before you scold me with an example of where minimum wage wasn’t disastrous, allow me to explain myself.
There are lots of factors that determine the state of the economy, so in order to explain the true effects of a minimum wage, it is important to highlight that the analysis of such a policy must operate in a vacuum. By holding other variables constant, it is easy to see why minimum wage is detrimental to a free market society. Clearly, the economy can still thrive despite a minimum wage, but is inherently less productive and less efficient with it. There are a few reasons behind this.
Raising wages is an additional cost to employers. If the employers incur an additional cost, one of two things is going to happen. People will get laid off, or employers must increase prices of products. Obviously, layoffs are a negative result. If prices of goods rise, there is going to be less demand for goods as they are now more expensive. That is a fact. The result is that those who are unaffected by minimum wage directly, now are indirectly paying a premium for goods to subsidize the increase in labor costs.
What follows is an economy with some individuals with a little more money in their pocket, some out of work, and prices of goods that are higher. So even for those who are enjoying their pay hikes, those pay hikes will be negated by the increased prices of everyday goods that they buy. The actual purchasing power won’t shoot up as anticipated. Not to mention the fact that a minimum wage policy then decreases demand for human labor as it becomes costlier. Robots work for free and humans do not: the bottom line being companies will look towards automated services.
Free markets are one of the greatest aspects of our country. Employers will pay their employees the value they add to their company. If they do not, those employees can move to other jobs where they are paid according to their value. It is a voluntary transaction between two parties. And if you can’t switch jobs for higher pay, then you need to learn marketable skills or work harder to make yourself more valuable so you can switch to a higher paying job. That is not to say that all minimum wage workers do not work hard. However, in no way should a business owner simply be forced to pay you more than you’re worth so some politician can get your vote. That’s assuming you aren’t one of the ones who gets fired.
It greatly concerns me to hear of the ubiquity of such disastrous policy proposals among young minds in our country. I worry that the emotional appeal of certain policies such as the minimum wage will severely hurt those who are most vulnerable by raising the costs of goods and increasing layoffs.
For those who curse me as a heartless capitalist, I implore you to set your political affiliations aside, and to evaluate my argument. I hope to encourage future dialogue on this issue and many more.