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It's A Gray Area: Minimum wages cause more harm than good

April 19, 2013|By James P. Gray

The 2012 platform for the Democratic Party promised to raise the national minimum wage from $7.25 to $9.50 per hour and to tie future changes to inflation.

Just as with arguments for a "living wage," this sounds like a good and compassionate idea, but it has a false allure.

The U.S. Bureau of Labor Statistics reports that about 70% of minimum wage workers are teenagers, college students and secondary earners who are in households that, for the most part, are not poor. Thus, only about 30% of the extra income generated by minimum-wage laws goes to people below the poverty line. So if the idea is to relieve poverty, the minimum wage laws do not provide nearly the assistance commonly believed.

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Instead, the major effect of these laws is to reduce the number of low-wage jobs available for entry-level positions. For example, harsh as this may sound, some workers are simply not worth $9.50 per hour. Thus, no jobs will be available for them, and they will be out of work.

In addition, some companies simply cannot stay in business if forced to increase their labor expenses. That means they will have to make some choices.

One choice is to lay off some workers and attempt to get by with a smaller work force. This financially assists the remaining workers because they receive a raise, but it also results in a more hectic workplace. But obviously this also results in a large hardship for the laid-off workers. In addition, some companies will not be able to adjust, so they will go out of business, resulting in all of their employees losing their jobs.

Another choice is for companies to mechanize so that they can replace the more expensive human workers with computers, robots or other machines. A graphic example of this is the replacement of many cashiers at home improvement and grocery stores with self-checkout equipment.

But some companies, such as fast food restaurants, are so labor intensive that they cannot adjust or mechanize. Thus they are generally forced to continue with the same staff at higher wages. Some of these companies will successfully manage the changes, but others will close their doors.

Other businesses have political clout and are able to seek and receive exemptions from the increases, arguing that they would go out of business without statutory relief. The most common of these are exemptions for workers who pick agricultural crops, but the same argument can be made for many other businesses that are not so politically powerful.

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