Monday, July 27, 2009

The new minimum wage will hurt more than it will help

Last Friday, the federal minimum wage increased 11% to $7.25/hour.

In Ohio, the minimum is $7.30, which was effective as of January 1. The old Ohio minimum of $6.55 (for 14- and 15-year-olds and employers who gross $267,000 or less) is replaced by the new rate, making it the same as the federal minimum - also an 11% increase.

So what does this mean in a state that has record unemployment numbers, especially among teens and those with only a high school education?

Well, common sense will tell you that if employers have to pay more for an item (in this case - labor), they will try to get their money's worth - the same as you and I. So with higher numbers of people looking for work, you have more supply and more options when it comes to who you will hire. If you can hire a high school kid or someone who's actually got some work experience but has now been laid off, which are you more likely to choose?

Most employers will pick the more experienced individual, leaving more of the teens and lesser-skilled individuals without work.

The wage that is touted as 'helping' those who only have the skills to earn the minimum, ends up hurting them because it makes them less desirable than others when compared to the value of the work.

Steve Chapman has a great column on this very concept, calling the minimum wage a 'dangerous mirage':

At a time when employers are laying off workers, Washington is going to make it more expensive to keep them.

If you're a minimum wage employee, your job will pay more, but only if it still exists. These days, most companies are scrutinizing every position on the payroll to make sure it's worth the cost. Raise the toll, and some employees will find they are no longer valuable enough to make the cut.

He also explains how the increased minimum wage pushes more people into jobs that are not subject to minimum, actually increasing the number of people who earn below that amount.

The facts and data clearly show that increasing the minimum wage does not really help people who earn that amount. So why do politicians keep doing it? And will the American public ever truly understand the negative economic impact of this action?

No comments:

Google Analytics Alternative