Increasing minimum wage not an effective solution

In his State of the Union address, President Barack Obama advocated an increase in the federal minimum wage to $9 per hour. Many liberals agree with the president, believing it will benefit the working class. However, they fail to recognize that in reality, a minimum wage increase would have a negative impact on everyone, from the lowest members of the working class to big corporations and everyone in between.

The first problem with a minimum wage increase is that it will create more unemployment. This is due to basic economics. Labor, like any good or service, is subject to the laws of supply and demand. The one key difference with labor sales, however, is that the workers are the producer (seller) and the companies are the consumer (buyer). By the basic law of supply and demand, at a higher price for labor, the companies will hire fewer workers. As a result, it will create a shortage of demand for workers, and unemployment will increase.

Additionally, some employees, companies would hire at the current federal minimum hourly wage of $7.25 will be unemployable at $9 per hour. If a prospective cashier at McDonalds is capable of doing work that will generate the company an additional $8 of income per hour (compared to what they would make if they did not hire an extra cashier), then McDonalds will gladly hire him for $7.25, or even $7.50. It would mean more profit for them. However, if they have to pay him $9 an hour, they will never hire him, and neither will anyone else in the industry. He will be unemployable.

Of course, if said cashier were able to get hired at $7.25 an hour, he would not have to remain at that salary level forever. By gaining on the job experience, he would learn customer service skills that would enable him to generate far more than $8 an hour in income for his employer. Perhaps at that point he could switch jobs and work at a more prestigious restaurant than McDonalds.

Finer restaurants require their employees to have higher service skills than McDonalds does, so they pay them significantly more. Someone with no experience in food service, like the unemployable cashier in the first example, would never be able to get a job there. He would never be able to climb the career ladder because the first step would be set too high for him to reach. By raising the minimum wage, we raise that first step and fewer people can climb to the top.

Recently, TD Ameritrade ran a commercial featuring a man named Joe Woods who started his career as a busboy at a restaurant, but was promoted to waiter and then to chef, before opening up his own restaurant. He was able to successfully climb the career ladder because the first rung (busboy) was not set too high for him to reach. With a higher minimum wage, it might have been, and Joe would never have had the success he eventually did. Although Joe Woods is a creation of the company, there are many real-life success stories like him. Sadly, there are also many real-life failures who could have succeeded if the first step of the career ladder was low enough. A higher minimum wage raises that first step and creates more failures.

Additionally, a higher minimum wage raises prices at supermarkets, gas stations, Wal-Marts and many other places. These places are generally among the largest minimum wage employers. They are also where people do most of their shopping. When these companies have to pay their employees more, that additional expense gets passed on to the consumers – including the very same minimum wage employees who just had their salary raised.

Furthermore, when people have more money, prices will increase regardless of why the people have more money. These factors will compound each other to reduce the purchasing power of the people the minimum wage was trying to help.

While supporters of President Obama’s proposal certainly have good intentions, raising the minimum wage would do more harm than good to everybody, including the very people it is trying to help. Therefore, advocates of the plan should reconsider their position.