Why Minimum Wage?

When I first saw the idea of a $15/hour minimum wage suggested, I was skeptical.  My skepticism came from not agreeing with the number since I had seen low cost of living areas where it seemed like less than that was far more than what was needed to support oneself.  My counter suggestion at the time was something more like $10/hour since the math I had done for my own finances said that was my own break-even point if I stayed living in the area near my college post-graduation.  I was expecting to be in the main body of the argument against $15/hour and that discussion would be a back and forth about what was the ideal number to increase the minimum wage to.

That isn’t what happened.  Instead, I have seen the most vocal opposition to $15/hour come from a stance of opposition to an increase at all and even some people saying that the minimum wage should be abolished.  This has of course forced people like myself who support and increase and wanted to discuss the exact numbers more to give support to $15/hour since that was the number with momentum behind it.  Just like my initial impression was that it was too high, there were just as many people who felt like it was too low.  All of these people have had to sacrifice a more nuanced conversation in order to defend the concept of the minimum wage itself.

So, I decided to take some time to observe the arguments of minimum wage opponents so I could better understand them.  The core of their argument seems to be that increasing the minimum wage will drive inflation.  The idea is that if people have more money, businesses will charge more for their products in response netting a zero change for people making minimum wage and resulting in an increase in costs for people making above minimum wage.

There is also another point brought up that people who are currently above minimum wage but below the newly proposed level fear that an increase will wipe the results of personal contract negotiations they have made and set them back to square one.  Combined with the first point, these people feel that they will be worse off for a minimum wage increase.

A third point brought up is the fear that an increase in the minimum wage will cause an increase in unemployment by forcing businesses that have payroll as their main overhead expense to either lay off people or go out of business.  The thought is that it doesn’t help anyone for jobs to pay more if people don’t have jobs.

The first point is fairly easy to refute.  Inflation has held fairly steady over the last few decades.  There are a lot of factors that affect it and there is no evidence of a major correlation between a minimum wage increase and an inflation spike when the minimum wage has been increased in the past.  So, even if an increase does cause an inflation spike, that spike will be extremely muted compared to the wage increase.  The idea of a minimum wage increase netting zero change for those at minimum wage is unsupported by the evidence.

The second point requires a bit more thought experiment to address, but my own conclusions are the opposite of what the opposition arguments state.  It makes sense to me that if a person finds themselves in a position where they are now making minimum wage when they weren’t before, they are in the position to argue for a further wage increase.  After all, they can threaten to quit and go work a minimum wage job that requires less skill or stress on their part and make the same amount of money.  If they are valuable enough to their employer, they will get a pay increase.  If not, they will go work an easier job.  

Some employers might not go for it, but as soon as some employers budge (many will probably not even need an argument) the best-skilled employees will flock to the jobs that pay more.  This will cause a cascade effect as jobs higher and higher up the pay scale receive a pay bump or people leave them in favor of easier jobs with similar pay.  The effect will lessen as it moves up, and will eventually reach a point where it is lost.  However, in the long term, most workers will see themselves receive a pay increase per difficulty of the job done.  The only people who would not receive a bump at all are already making enough money to not be overly concerned.

This is an argument that I have also seen put forth when it comes to other benefits.  People don’t want to lose the PTO, medical care, or other benefits they are negotiated for because of some other level of benefit becoming the new standard.  I have seen one person state that they don’t want a minimum PTO standard because they are afraid that if two weeks becomes the minimum, that is what they will get instead of the eight they negotiated for.  I think this is another case where people will never lose what they have negotiated for and you will see some people in the position to negotiate for an even better increase.

Finally, the third point gets more into a question of values and priority.  I do expect some businesses will find themselves unable to match such a significant increase in the minimum wage.  After all, $15/hour is more than double the current federal minimum wage.  However, I would say that any company which is paying its workers so little that they can work a 40 hour week and still need welfare support of some kind is in fact being subsidized by the welfare system.  I would rather see those workers take the time to either improve their skills or seek out better employment than being stuck in a dead-end job but not have the time to change their situation.

Furthermore, many minimum wage workers are in industries where other costs form a larger part of overhead than wages.  Companies such as Walmart and Amazon will not feel a significant financial burden due to increased wages.  The number of actual jobs lost will be minimal.

There is another important economic factor to consider.  People at the lowest end of the income scale tend to immediately spend money when they have a windfall or a pay increase.  This is because most of them have things that they need but have been unable to purchase due to a lack of funds.  More funds in their hands means more immediate spending.  Large-scale increases in spending mean a stimulated economy and ultimately more jobs.  
Some of the people making the new minimum wage may even find themselves in the position to strike out with some great idea they have had in their mind and simply haven’t had the chance to act on.  Following this line of thinking, I feel like it is safe to call a general opposition to an increase in the minimum wage or even minimum wage as a concept to be an example of Corporatism philosophy as I have defined it in the past.  A regularly increasing minimum wage is an application of the Entrepreneurism philosophy.

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