500 Words – Let's Ditch Minimum Wage

One Dollar Bill Surrounded by Coins

My first job in the continental United States was at grocery chain called Vons in Las Vegas, Nevada. I was sixteen at the time, and made a whopping $4.25 an hour. Soon after that, the minimum wage was raised to $5.15. Since Vons wanted to pay a little more than the minimum wage, Vons gave me a pay raise to $5.35. Why do I bring this up? Because I know what it is like to be on minimum wage. I know what it is like to work forty hours or more during the Christmas rush and only have about three hundred or so dollars to take home and call my own.

I have since moved on from my retail days, got few college degrees, and am now a professional. I make a good deal more than I used to during my “minimum wage” years. I am thankful for my lower-earning years because it helps me respect those who have yet to climb up the pay scale. I also have great sympathy towards the single mothers on minimum wage. My mother was one of them.

However, from an objective standpoint, I have to say it’s about time to ditch minimum wage, and not raise it. Here’s why.

Who Earns Minimum Wage?

People typically earning minimum wage jobs are what the economists refer to as “low-skilled” workers. According to George Will from Billings Gazette, only 1.9 million workers are on minimum wage (or less). Of those workers, sixty percent are in the waiter or bar profession. A quarter of the workers are students, and half are under the age of 25. Granted, some of the workers could be under 25, students, and work as waiters.

Relatively speaking, the minimum wage increase would holistically benefit those working under the age of 25. Since waiters and waitresses would likely not get a raise, the minimum wage increase will likely benefit students in other professions.

Who Benefits From Minimum Wage?

As stated earlier, sixty percent of those earning minimum wage will not benefit because they are either in the waiter or bar profession and are earning tips. Since the other forty percent or so is made up of loosely students and adults, it’s hard to actual picture who is benefiting.

Students in school will greatly benefit from an increase in minimum wage. However, some students may benefit too much. In other words, some students may find it more valuable to go to work rather than school. According to George Will, when states allowed students to leave school before eighteen and had a minimum wage increase of ten percent or more, the enrollment rate for schools in that state dropped two percent.

Others who may benefit are impoverished mothers like my mom back when she was making minimum wage. However, my mom had assistance from welfare to take care of her kids. According to the testimony of Ed Lazere in 1999 before the House Committee on Education and the Workforce, minimum wage made it easier to switch off of welfare (in Oregon) and into regular employment.

So following the welfare argument, that means the Government would pay out much less in welfare payments as a result of increasing the minimum wage. According to Mr. Lazere’s testimony, however, employers can receive financial assistance from the Government for hiring former welfare recipients. Furthermore, when raising the minimum wage, employers are given tax credits to offset the higher wages.

Who Loses With Minimum Wage?

Just as minimum wage benefits some people, minimum wage will also have drawbacks for several groups.

One group that will lose is the employees receiving the minimum wage increase. The drawbacks come in the form of job insecurity and an increase in expectations. One must understand that at any given wage, an employer expects a certain amount of productivity out of an individual. If that individual is not willing or able to meet that productivity standard, the employer will find someone who can. As a result, the job expectations of the employee will go up, and the job security of the employee will go down. Since the employer will expect a higher standard, anyone not willing or able to make the cut will be let go.

Another group that will lose is the employer. According to Walter E. Williams, employers are going to have to make some tough decisions. Just as there is price elasticity for consumer goods, there is also elasticity for the price employers are willing to pay for workers. If the price is too high, then employers may opt for capital investments. One example that was given was, fire a few dishwasher employees and invest in a new dishwasher machine.

Employers will get some breaks. Employers will be incentivized to hire former welfare recipients and will also get tax credits to help offset the higher wages. There will be more pressure on management to be more productive, and more pressure from investors to increase profits. If profits are not being met, guess what will happen? Higher prices and/or layoffs.

The last group I will mention that will lose is the Government. The Government will see less people on welfare. However, employers will be able to receive financial assistance from the Government as an incentive in hiring former welfare recipients. Furthermore, the Government will also be paying employers for the higher wages in the form of tax credits.

Ditch Minimum Wage?

Since there are disadvantages on both sides, what’s the solution? George Will from Billings Gazette says to ditch the minimum wage, and I have to agree with him on the issue.

First thing, minimum wage was set up during The Great Depression (in 1938) in order to assist employees and possibly stimulate the economy. Since there was almost a twenty percent unemployment rate, the minimum wage didn’t do much to help the ailing economy. It was only in 1939 — when a certain World War started — that the economy actually started to recover. Minimum wage, however, has stuck around until now. And frankly, it’s outdated.

Let the Markets Decide

What if a business put out a good or service for ten dollars. What if customers were only willing to pay nine dollars? Then the business would go out of business unless it lowered its prices. Now what if the business decided to sell the good for five dollars, and customers were still willing to pay nine? Demand for the product will be quite high, possibly forcing the business to increase the prices to lower demand.

Now what if a business had a job advertisement for five dollars an hour? What if the lowest-skilled workers would only work for six? The employer would be forced to raise the hourly rate, or risk having a permanent vacancy. If the business raised the hourly rate to six dollars an hour, then that would meet the lowest-skilled workers’ demand for pay.

Minimum wage should be set by the market, and not the Government. Minimum wage should be set by individual businesses and what people are willing to work for. Unfortunately, that will never happen again in the United States, as George Will so kindly pointed out.

That’s my 500 Words.

2 thoughts on “500 Words – Let's Ditch Minimum Wage”

  1. I'd add one more point against minimum wage, or at least against raising minimum wage. Raising minimum wage increases labor costs for certain employers. How do they cover these new costs? Usually by passing the cost on to the customer through higher prices. Higher prices mean a higher cost of living for everyone, which in turn drives raises for people not earning minimum wage. People are paid more, but everything costs more. And now where are the people earning minimum wage? Right back where they started, not earning enough to live on (although the "living on" point is debatable, see above). Oddly enough, no one seems to realize that this happens when minimum wage is raised.


  2. Pingback: What Are Crap Jobs Anyway? » Ronalfy.com - Life is a blog. I wanna write it.

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