Minimum Wage - Another Disaster Promoted by Obama

By Tom Rhodes, 2/27/2013

Obama has proposed a $9/hr minimum wage. That's a 25% increase over the current minimum wage. What do you think will happen if he gets his way? If you think poor people will be better off your wrong. What it will do is the same thing that happens to anything that has a 25% price increase, people will buy less of it. Economists agree raising the minimum wage would have a negative effect on low skilled workers. New and entry workers, aka low skilled workers, are those who earn the minimum. They will be the hardest hit.

Consider your shopping choices; say you are purchasing a tool, like a ratchet or screwdriver. There are all different grades of tools. You can buy 3/8 drive ratchets anywhere from $8 to $30 dollars. Low end ratchets of reasonable quality that aren't complete junk cost around $16, about half the cost of a top quality name brand which costs twice as much and is twice as good. If the cost of the low end was artificially increased 25% to say $20 instead of $16, with no requirement to raise the top end tool price you would probably consider spending the money on the high end product. It only costs 50% more and has twice the quality. The same thing happens with labor. Just like the high end tool will last longer and be more reliable than the top quality tool, why not spend a bit more and get a proven worker who can produce twice as much for less than twice the cost.

Historic data and economists agree, raising the minimum wage makes it harder for low skilled and entry level workers to find and keep jobs. It will result in more unemployment; and because there are a disproportionate number of minorities, especially blacks, who lack even a high school diploma, it will disproportionately hurt minority workers.

In examining more than 100 major academic studies on the minimum wage, University of California Irvine economist David Neumark found that approximately 85 percent of the studies "find a negative employment effect on low-skilled workers." Neumark says that the White House claim "grossly misstates the weight of the evidence." His work matches with similar works in the past. A survey done in 1990 reported that 80 percent of economists agreed that increases in the minimum wage cause unemployment among the youth and low-skilled. 90 percent of members in American Economic Association agreed that increasing the minimum wage raises unemployment among young and unskilled workers, this from a survey as far back as 1976. Even most introduction to economics textbooks mention that increases to minimum wage result in increases in unemployment for low skilled and entry level workers.

The result of a 25% increase in the minimum wage will be higher costs and worse service. The cold hard fact is bagging groceries isn't worth $9/hr. So there won't be as many baggers (or other low skill entry jobs), and we will all end up with slower and poorer service because we can't afford to pay more for our groceries, and a $25% increase in labor costs will affect how many employees a grocery store can have and remain profitable.

Home Depot and other retailers have installed self checkout lanes, where 1 employee monitors 4-6 check-outs. Customers ring up and bag their own goods. This is the result of high minimum wages. One $10/hr person doing what could be the work of four $5/hr people. When was the last time you were at a grocery store, WalMart, etc. that had all the checkout lanes filled with cashiers, or even had enough employees so you didn't have to wait in line. Not always, but often enough to be bothersome there are lines even when the store is slow, the reason is because of the minimum wage.

The preponderance of evidence and expert opinion's agree that raising the minimum wage will hurt employment of those in most need. Of course this is a rational, logical, objective, and historic look at the minimum wage and its effects. As such the emotional call to make things better for the poorest workers will override the facts.