Raising the Minimum Wage is a Dumb Idea

Site Sponsors

Topics

Subscribe to AFM

Site Sponsors

Some of my Friends are Authors

AFM in the Media

Blog Stats

Search

« The $39 Experiment | Main | What’s an Earnings Yield? »

Raising the Minimum Wage is a Dumb Idea

By JLP | March 10, 2006

Even though I think John Edwards is about as fake as they come, this isn’t a political post.

I love how politicians make these hearfelt promises without really understanding what they are talking about. One of those politicians is John Edwards. He thinks we should raise the minimum wage to $7.15 per hour. He says:

The wage we pay our workers reflects how much we honor their hard work; shouldn’t they be earning more than $5.15 per hour – the same low rate they’ve been getting for the past ten years? This wage is just not livable for many families.

Now, I’m no economist but I do understand SUPPLY AND DEMAND (something most politicians DO NOT understand). You can’t just jack up a wage to something you think is a living wage. Why? Because eventually prices will rise so that employers can afford to pay the new wage. Jobs that require little or no skills are jobs that can be done by a lot of people. These jobs are typically paid minimum wage. Raising the minimum wage does nothing but increase prices for the goods and services that these same mimimum wage earners must purchase. Guess what, in a couple of years politicians will start talking about raising the minimum wage again.

I have to hand it to John Edwards and the other politicians. They have found an issue that most people won’t say no to because they don’t want to come across as cold-hearted or mean. John gets to look like he really cares for people even though he’s spending everyone else’s money. What a joke.

Raising the minimum wage is a dumb idea.

Topics: Miscellaneous |

Comments to “Raising the Minimum Wage is a Dumb Idea”

Jared Allen Says:
March 10th, 2006 at 11:36 am

Exactly. However there is an additional problem with raising the minimum wage willy-nilly as politicians love to suggest. Say I make minimum for a period, and my employer rewards my hard work with an increase of $2.00. Now I’ve got greater spending power. However, when the wage is raised, I’ve lost that spending power and the reward for hard work. Multiply this by EVERYONE who works hourly but makes more than the minimum wage and you’ve taken real dollars out of our pockets in a ‘political’ good-will move.
Sick.

Him (Make Love, Not Debt) Says:
March 10th, 2006 at 11:53 am

But what about the fact that minimum wage increases HASN’T been keeping with with inflation? Every year, inflation reduces the effective spending power of minimum wage workers. That means that for the past 10 years that minimum wage hasn’t increased, inflation has actually made it decrease. I don’t think that’s fair. But I also don’t think that raising the minimum wage is the answer, either.

Don T. B. Afool Says:
March 10th, 2006 at 12:19 pm

The reason we have inflation is due to the fact that the Fed prints more and more money. Again, it’s supply and demand.
You didn’t get Jared’s point - you can not fight inflation with a higher min. wage!! Once you raise min. wage then the employers (McDonals, Safeway, convenience stores) all have to raise their prices to cover the increase. SO WHO PAYS THE INCREASE and WHO is AFFECTED the most - it’s those people who are barely getting by paying! Now they’re paid more, but it cost more for food and gas, etc.

Next topic - why corporations do NOT pay taxes (hint - prices pass their taxes on to the consumer)

BD Says:
March 10th, 2006 at 1:39 pm

Well, the minimum wage hasn’t kept pace with inflation in the last ten years. I’m not sure if $2 is the right amount, but some sort of cost-of-living adjustment seems warranted.

Also, I don’t buy the “raising the min. wage will lead to inflation” argument because most of the people with wages as well as the overwhelming majority of the amount paid out in wages, are not the minimum wage or tied to the minimum wage in any way. Overall inflation is most strongly influenced by the money supply, which is strictly controlled by the Federal Reserve bank. Consumer prices are related to consumer incomes, but these incomes are NOT controlled by the minimum wage!

Off topic, am I the only person who has a hard time entering comments? When I start entering text, the comment box expands off the right edge of the screen, over the “Other Great Blogs” box and off the edge of the browser window. However, there is not right-hand scroll option, so I can’t see part of what I write. I copied and pasted this in from Notepad as a work-around.

JLP Says:
March 10th, 2006 at 3:10 pm

BD,

It should work now. I had been meaning to fix it a long time ago but never got around to it.

Brad Says:
March 10th, 2006 at 4:26 pm

Is anyone here even making the min wage? Very easy to say its a bad idea to raise it when you don’t have to try and live off of it.

Eric Says:
March 10th, 2006 at 8:55 pm

On the other hand Brad, its easy to support raising the minimum wage when you don’t have to worry about losing your job as a result. If I’m making the minimum and my employer has to start paying me more money for the same work then I better hope I’m worth it.

John M Says:
March 10th, 2006 at 9:03 pm

If raising the minimum wage is a dumb idea, What would be a smart way to increase the standard of living for the working poor? I think that raising the rate by 2 dollars is not the right answer because it will cause a lot of jobs to be lost. But we hold some responbility to maintain a minimum standard of living for the population.

tk Says:
March 10th, 2006 at 9:29 pm

IMO minimum wage should increase with the wages of the people in congress. how about the wages of ceo’s? all these people get wage increase well above inflation every year and here you have people complaining about raising the wages of the people of the lower class. IMO everybody in the us works hard. The guy in walmart is working probably harder than the people who are posting here on their work time. The only difference between the walmart worker and the people putting down minimum wage earners are things that are out of their control. Like the family that they were born too. How about the handicap people who aren’t able to do anything other than minimum wage work? Don’t they deserve better? What about the females and minorities who are perpetually paid less? Why should people who were born into a good situation that allowed them to get the jobs that they have today be the only allowed to get raises beating inflation? Do you really think george bush would have had anything remotely like the life he has today without george senior? What if the guy was born to a poor single mother and was handicapped and a minority? I believe there are people who beat such situations but I also believe there are many who didn’t. It’s all about luck.

Of course raising minimum wages will cause inflation. This is not the only way to cause inflation. Greedy coporations raising prices and paying a ceo 15000% more than the average worker causes inflation too. Cutting government subsidies to colleges which leads to increased college tuitions causes inflation too. Rich inheritors who keep bidding higher on local real estate are causing inflation too. Why don’t you post about these things instead?

Brad Says:
March 11th, 2006 at 8:20 am

tk, nicely said.

Carolyn Says:
March 11th, 2006 at 10:11 pm

I think minimum wage is due for an increase, but I’m not sure how much it should be. The price for milk, gasoline and other essentials have gone way up since 1997, and minimum wage should probably reflect that. On the other hand, a minimum wage job should not be a life long career path. Minimum wage jobs are for teenagers. Adults that have been in the work force for over a year should have been able to progress and get raises.
The last time I made minimum wage was when I was 15 and babysitting. My first “real” job at age 16 paid $1.50 over min. wage - but it was a lot harder than the typical min. wage job too.

My main problem with raising the minimum wage is that my salary would have to increase substantially. My career is mind-bogglingly hard, takes long hours and lots of education. If minimum wage goes up, then I ought to make that much more than someone that has no education and has to do very little thinking on the job (and absolutely no ambition). This is where the problem lies - if unskilled labor can make more, then skilled labor has to make that much more, and the “problem” doesn’t get solved.

fivecentnickel.com Says:
March 11th, 2006 at 10:34 pm

Weekly Roundup - 03/10/06

Weekly roundup time Here are some of my favorite posts of the past week from the MoneyBlogNetwork and beyond

Pete Shaw Says:
March 12th, 2006 at 5:19 pm

Look, the idea of raising the minimum wage isn’t about economics or the free market. The idea is that as a society we want the littlest guy to be treated with some amount of decency. I mean, you don’t suggest we just screw all the poor people in the US just to optimize the GNP do you?

Does anyone really think its possible to survive on $5.45 an hour? Can you raise a child? Do you think that person is going to be able to afford preventative medical care? Pre-natal care? Auto insurance? When people can’t afford these staple items, they generate problems that ripple beyond their immediate family. They go to the emergency room at the 13th hour, have children that grow to be criminals, crash into your car with no insurance.

I guess if you are just talking theoretically, sure, there is no point in raising the minimum wage

But at some point you’re going to have to deal with the problems these poor fold have, and the societal problems they generate.

Alex Says:
March 13th, 2006 at 8:53 am

I hear people saying increase the minimium wages so that the poor have a decent living. I will as far as to say that there shouldn’t be any minimum wages. Let market decide it. Coming from that perspective it’s good that the minimum wage hasn’t increased over the last few years. In this way it’s effectively becoming meaningless.

Minimum wages is like subsidy ( think of sugar subsidy). It’s a waste and ends up hurting the very people it was meant to help. Wage is a supply and demand issue and government should be out of it.

Of course politics come into picture and event smart people who become politicans ends up voting for it. That’s just how democracy works.

tk Says:
March 13th, 2006 at 12:29 pm

Market driven economy means the monopolies win. It means the only person who becomes ceo is a guy the ceo calls junior. It means junior becomes president. It means the only person who wins are the incumbents. In such a situation it’s not the best and the brightest who wins, it’s the guy who is related to the incumbents who will win. When the incumbents become too powerful and chokes off any creativity, this is just repeating a cycle that brought down many civilizations and nations. This is why people come to America. This is why America is so powerful. The country is one of the few in which a guy instead of having a 1 in a million chance he has a 1 in thousand chance to make it. However, if you guys keep putting the little guy down then we will just become just like the many countries people immigrate from, countries run by “old money”.

You may not believe any of the above but how about this example. A market driven economy would be like major league baseball or nfl or nba without a salary cap. Do you think the salary cap or the strict way these organizations have been governed hindered competition? Of course not, these organizations are good examples on how to get the best and the brightest players playing their respective games. Of course the analogy is not perfect since the couching staff and owners are largely “old money” territory.

As with all things in life there is a need for a balance between control and freedom.

Now what’s dumb about what I wrote, Alex?

Alex Says:
March 13th, 2006 at 4:19 pm

“Market driven economy means the monopolies win.”

I don’t agree with your basic assumption. You pick up any economics book and the general meaning of market driven economy is a place where the competition is without the hindrance of the government but (note this) the role of the government is to ensure that there is fair competition in the market. No monopolistic policy.

In my view the government should ensure that there is a fair competition in the market and that’s it. When govt comes in picture all kinds of bad things happen to market ( think of controller rent, think of subsidy, think of rationing system, think of taxes).

Not all big companies will be there forever. They have their weaknesses and small companies have their own strengths. If a small company wants to take on big companies then they should do based on service/product not because govt is pushing them against the big companies. I do admit that the big companies tend to change the rules because of their heavy lobbying power and voters should punish politicians who are swayed by the big lobby groups.

justanotherblogger Says:
March 13th, 2006 at 4:45 pm

tk,
Maybe you should do some research before you SPECULATE on what having no minimum wage really means. No, it does not mean the economy will be like the “mlb or nfl or nab without a salary cap.” It also does not mean that monopolies automatically win.

Since you did not offer any statistics or numbers to back up your statements, I really can’t refute what you have speculated on. However, I can offer some statistics to dispute your “monopolies win” theory.

Hong Kong does not have a minimum wage (except for foreign laborors, a tiny % of the population). Hong Kong consistently ranks as the World’s freest economy. (12th year in a row) http://www.heritage.org/research/features/index/countries.cfm

However, monopolies do not run rampant as you suggest. Having no minimum wage or less government intervention in the economy does NOT mean that companies are able to collude or engage in fraud. Antitrust laws still exist.

Also, Austria, Germany, Denmark, Italy, Sweden, Switzerland, all don’t have government imposed minimum wages. Yet none of those countries are over run by monopolies.
http://en.wikipedia.org/wiki/Minimum_wage#Worldwide_minimum_wages

Please do some research before you throw out numbers such as “1 in a thousand chance” compared with “1 in a million chance”. Where did you get those numbers anyway?

tk Says:
March 13th, 2006 at 10:16 pm

Alex,

I agree with you 100% that government should only encourage fair competition and should never get in the way of business. However, I think the us government has failed to do this. Microsoft is a perfect example. The european union fined microsoft for monopolistic practices but the us government found no problems in the way they do business. I think the problem is that the us government is way too pro-business at the moment. I have a feeling the 13 billion dollars used to lobby the government has something to do with this. Why would companies spend so much on lobbying if it didn’t work? http://www.realcities.com/mld/krwashington/news/columnists/steven_thomma/13568129.htm?template=contentModules/printstory.jsp. I think the only way to avoid this is giving the people more power in the government. Right now the balance is way too much into the corporations’ favor.

Justanotherblogger,

I think you are misunderstanding me. First off my post was about the downside of a market driven economy. I think I provided many good points to how the incumbents would have too much power in this situation which would weaken the country. Why creativity is eliminated due to the small pool of talent to choose from. Sorry if my examples don’t involve statistics and numbers from a lobbying group like “The Heritage Foundation”.

I’ve noticed you are using data from a politically oriented conservative group “The Heritage Foundation”. Here’s a book about this lobbying group http://www.amazon.com/gp/product/0915463776/103-6125275-3051829?v=glance&n=283155. As for their “Index for Economic Freedom”, it’s interesting but is this objective data?

You know in Germany (I am not claiming to be an expert on the country), and probably the other European countries, have very strong worker unions that set the minimum wages. It’s funny that the German worker union sets the minimum wage. In a way the Germans are telling us that they have no faith in letting their government or businesses set the minimum wage. You know it just occurred to me that it’s ridiculous that we Americans let the government set the minimum wage. Might as well let the corporations set it. But I digress. As for there not being any monopolies in these countries. In Germany there are “the big three”, Deutsche Bank, the Dresdner Bank, and the Commerzbank, that controls nearly all the companies in the Germany http://www.country-data.com/cgi-bin/query/r-4951.html.

Btw the 1 in 1000 number is just used to add color to my post. In the future I will sure to use the “The Heritage Foundation” as my source for all my posts.

justanotherblogger Says:
March 14th, 2006 at 9:26 am

tk,
I’m not sure I understand how a think tank is a lobbying group, but if you’re not familiar with the Heritage Foundation, that’s okay. There are many other think tanks that try to analyze economic freedom.

Here’s another article from the Cato Institute about Hong Kong being the World’s Freest Economy. http://www.cato.org/dailys/07-28-04.html They label themselves as a liberal think tank.

As for your criteria of objective data, what would that be?

Exactly, in Germany, minimum wages if it exists for the industry, is determined by the MARKET. A worker union negotiating a minimum wage is completely different from a fixed price floor set by the government!

Instead of continuing here, if you would email me your criteria of objective data, and what exactly your argument is, I’d gladly write up a short piece on my website (about the pros and cons of the minimum wage).

This way, more people can be educated and informed about this issue. You can find my email in my blog. I hope to hear from you soon.

sam Says:
March 14th, 2006 at 3:57 pm

What are you willing to bet that the same people that think the minimum wage is such a good idea and needs to be raised, are those that throw a hissy fit when American jobs are outsourced to a foreign country where wages are lower?

Jason Says:
March 15th, 2006 at 11:02 am

John M, You ask “What would be a smart way to increase the standard of living for the working poor?”. The answer to that question is for them to obtain some sort of education or specialization. Employers will always pay for value. If you force them to pay people above their worth (for example with a minimum wage) they have no choice, but to shift their resources to something else. Like firing some unskilled labor and hiring a specialist, or buying a new machine. The only real way to increase the standard of living for the working poor is for them to increase their worth.

Doug Says:
March 23rd, 2006 at 6:06 pm

Some of you arguing for a hike in the minimum wage may be forgetting another point. Most employees are employed by small businesses. What do you think the small business man is going to do when he is forced to pay higher wages? That’s right. He’s going to let one or two go. So now the guy who was making a small wage before, is making no wage and standing in the unemployment line. Multiply that by several hundred thousand and we have an umemployment problem. Woops, guess we didn’t think about that. It’s called unintended consequences and is something that politicians are good. Remember the tax they put on luxury yachts and all the rich people went to Europe to have their’s built.

tk Says:
March 28th, 2006 at 4:21 pm

Doug,

I don’t know anybody earning minimum wage who is worried about job security. Finding a another minimum wage job is just a matter of walking into the next store. No big deal.

as for the small business owners, I don’t know any small business owner who can’t afford to pay their minimum wage earners more money. If you say you can’t pay then your business is not sustainable or you just aren’t willing to give up some rounds at the gold course.

As for yacht taxes. you bring up a reason why trickle down policies never worked. The rich have a tendency to send large quantities of money overseas in one swoop. Yes, minimum wage earners can buy made in china products but that product needs to be purchased in a us store that employs minimum wage earners living in the us and so and so on.

Roosevelt’s new deal showed us that providing good jobs that paid good wages is one of the few things that will help a depressed economy. Minimum wage was finally enacted at the end of the great depression. Generally it’s accepted that the first world war ended the great depression. However, with the formation of unions and minimum acceptable standards for employments people were finally forced to realized at that time that an economy can not be sustained by continuously pushing the low level workers. If you want to throw out this knowledge and support the corporations (guess who the owners are!) then we will be doomed do repeat history over again. frankly, I don’t think we have the luxury of making the same mistakes.

Comments

Name (required)

Mail (will not be published) (required)

Website

AllFinancialMatters

A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.

Site Sponsors

Recent Posts

Archives

Topics

Subscribe to AFM

Site Sponsors

Some of my Friends are Authors

AFM in the Media

Blogroll (Daily Reads)

Blog Stats

Search

Raising the Minimum Wage is a Dumb Idea