Calls to increase the minimum wage have returned. This time Jessie Jackson, Jr. claims to be the compassionate one, proposing an immediate increase from $7.25 to $10 per hour.
The fact that a nice round number like $10 is supposed to be the perfect minimum wage tells us that this proposal is not the result of any sophisticated economic analysis. There are other reasons with his proposal as well.
In a free market, wages are driven by the value individuals provide to employers. Socialists assume that wage rates are predetermined by capitalists who hold all of the cards, “forcing” workers to accept employment at rates below their real value and thereby enriching business owners unfairly. This is total nonsense, however, as illustrated by the following example.
Suppose workers at McDonald’s are really worth $10 an hour–Jackson’s proposed minimum wage–but the company only pays the current minimum wage, $7.25. This gap in value will lead better workers to seek employment elsewhere. Other companies would welcome the opportunity to hire away McDonald’s best workers at $8 or $9, raising the market wage until it almost reaches the real value. This process occurs daily in our economy. Put another way, companies just can’t get away with hiring working at rates below their real value for very long. This leads us to the flaw in Jackson’s logic.
If workers earn a wage close to their real value to employers, then an increase in the minimum wage would only mandate a raise to those whose must now be paid more than their real value. If a worker adds $8.50 worth of value to an employer’s business and federal law mandates that he be paid $10, the employer must either hire him at a $1.50 loss or let him go. A fast food restaurant like McDonald’s will always need some workers regardless of the minimum wage, so those retained might actually benefit for a while. They will be required to be more productive, however, while many of their co-workers will be left unemployed.
Higher wages also translate into higher prices, so we not only get higher unemployment but price inflation as well. To add insult to injury, unskilled workers are hit the hardest because their value to employers is likely to be less than the minimum wage. This is part of the reason why unemployment is currently high. Raising the minimum wage would only add fuel to the fire.
There is no economic justification for a minimum wage in the first place. Employers should be free to hire workers at a wage level agreed to by both parties. This means that workers who are genuinely underpaid can seek better options elsewhere. It’s unfair to deprive an unskilled worker of an opportunity to take a job and improve his skills simply because his market value is below the minimum wage.
Back to my original point…there are only two reasons why someone who propose an increase in the minimum wage, politics or economic ignorance. You are free to decide which of these applies to Jackson.
this isn’t economic ignorance, it’s just plain ignorance. Who’s going to hire someone for more than he’s worth?
not true b4l. raising the minimum wage will give many workers a raise and help them get off government support. the extra pay will be spent in the economy and will help the recovery. companies can afford the extra 2.75 per hour. if you want people to help themselves instead of depending on the government then you will support a higher wage.
Per Bureau of Labor Statistics, in 2011 minimum wage workers were about 5% of hourly workers, totalling about 1.7 million workers. Many of these are in the 16-18 age group. McDonalds pays min. wage to this group, mostly as a training wage, since they usually come into the workforce with no concept of customer service and how to perform the duties of a job. Once this investment is made by the employer, the worker comes off the minimum wage. I was in the convenience store industry for 20+ years and we did not pay minimum wage as it was less than the prevailing rates of our competitors. Also, we had to hire 18 or over because of alcohol sales. McDonalds and other fast feeders are more concerned about overtime than the hourly rate which is why they employ many part-time workers.