One of the proposals on the table from the State of the Union Address earlier this week is to raise the minimum wage to 9.00 per hour. This sounds like a great thing to do, it will give unskilled laborers a little more purchasing power. But, generally, this is not a fix to unemployment.
From an economic standpoint, the minimum wage is a price floor. In other words, prices can't fall below this point. And when you have a price floor, that generally means that the price can't fall to the equilibrium price. And when the price, legally, is artificically above the equilibrium price, then the quantity supplied will be greater than the quantity demanded. That translates to a surplus. Therefore, a raise in the minimum wage will lead to greater unemployment.
Very few adult workers earn minimum wage, however. But in this economy, some people need all the help they can get. Some adults are too young to retire, but can't find work doing what earned their bread and butter for so many years and have to start over. Others need to start somewhere. Students going to college should not pay for all of their expenses with student loan debt. Student's going to school from Mom and Dad's money should work to get some spending money. Minimum wage is for these people. For most of these people, the minimum wage is not a lifetime sentence.
Each job has it's own economic system; or it's own supply and demand curve. That is why some jobs pay more than others. Most employers are keen to this. If you advertise a job, and you get hundreds of applicants, then you are probably paying too much. On the other hand, if you advertise a job and have difficulty finding someone who fits, then you probably need to pay better. If you have high turnover in your position, you are not paying enough. If people are staying on forever, then you are probably paying too much. A good HR manager is keen to these cycles.
It is different for minimum wage jobs. My wife has recently attempted to return to the workforce after 16 years. Found herself in a group interview as one of 50 applicants for a minimum wage position. This probably indicates that for now, the minimum wage is too high. There are responses like this all over the country for minimum wage work. If anything, Congress should lower the minimum wage, at least temporarily, until the unemployment rate is back below 6% for a full quarter.
I am also an advocate for a lower minimum wage for workers age 19 and younger and still in high school, as long as the job does not require that kids work more than 25 hours per week when school is in session. Even in poverty, most kids who are still in high school are not working to help support the family. Most of these kids should be working to learn how to please an employer, get along with co-workers and develop good habits of managing money. They do not need to have a minimum wage as high as people starting out. Their wage could be set at 75% of the Federal wage for those over the age of 19 and who have completed high school. Right now, that rate would be 5.65. This would also help small employers who rely on this level of labor to remain in business. It helps those who run businesses that provide summer employment to reduce their operating expenses, helping them stay in business. I think about this every time I drive by a closed and boarded up store. Raising the minimum wage isn't going to hurt retail giants like Wal-Mart.
In fact, a raise in the minimum wage is a good excuse to pass expenses onto customers. We may raise the minimum wage to increase purchasing power, but in another 2 to 3 years, inflation will absorb that power and it will be time for that debate again. It was not that long ago that we raised the minimum wage to where it is today for the same reason we argue today.
Let's wait until we've seen a recovery in the job market to raise the minimum wage. And then, only raise it for those 18 and older once they have finished high school. That will help small business get a foothold in America again.
Posts
