I do not know anyone who is for poverty in the U.S. In fact, I am confident most Americans are against poverty in general.
As odd as it may sound, poverty is one of the reasons Americans should be against raising the minimum wage from $7.25 to $9 an hour as proposed by President Barack Obama in his recent State of the Union speech. As nice as eliminating poverty by giving low-income workers more money sounds, it has many unintended consequences attached to it.
The first thing to think about when you are discussing the minimum wage is the question of who has minimum wage jobs. The answer is: students.
More than half of people working for minimum wage are under 25, according to the U.S. Bureau of Labor Statistics. High school and college students generally make up the segment of the workforce with the least education and experience, and generally look for short-term or flexible jobs.
What are the main two factors in deciding a person’s wage? The answer is experience and education. That is the whole point of going to college and getting internships before entering the work force.
Simple logic can tell us the two results of raising the minimum wage: making young labor less competitive in the job market and trimming the number of low-skilled jobs.
According to the Bureau of Labor Statistics, the unemployment rate for high school and early-college-age people is 23.4 percent, way above the overall national unemployment rate of 7.9 percent. Part of this is due to the fact that older workers are resorting to taking these jobs due to the unemployment situation, which pushes out the unskilled teenagers.
Since the minimum wage increases the cost of employing a worker but not the worker’s productivity, employers will probably look to hire greater amounts of higher-skilled workers, which will just make the youth unemployment problem worse.
What good is a higher wage if you are unable to get a job?
Hiring practices would be affected as well. Since the goal of a business is to make a profit, they are only going to hire employees based on their value to the company after factoring in the cost of the employee. I could see companies making up lost profit by cutting the number of employees they have, and deciding against expansion of their business if it is not profitable enough to cover the increased cost.
Additionally, companies may decide to further automate their workplaces to cut down on the number of employees.
Modern technology can do almost anything and all the motivation businesses need to employee robots instead of people is for the robots to cost less.
This debate is not only about wages, but also about prices. Only those making less than the new minimum will get a raise, meaning prices could go up faster than wages. If the people making Big Macs are paid more, McDonald’s could raise its prices to make up the difference.
This idea of raising the minimum wage has the noble purpose of attempting to reduce poverty. However, just a little skeptical analysis reveals doing so will actually compound the problem it attempts to solve.
There are many other ideas for solving the problems of unemployment and poverty; hopefully the president will stop to consider more viable alternatives.