The state of Washington has the highest minimum wage in the union. Now there is a movement in Seattle to raise the minimum wage to $15. (see www.cnbc.com/id/100971430).
Proponents of the increase are making the usual arguments. Low-wage workers aren’t being compensated fairly by evil capitalists and they “deserve a raise.” Some economists even claim that hiking the minimum wage actually creates jobs. According to UC-Davis’ Chris Benner, “when you increase income to low-wage workers, it creates jobs because those workers are likely to spend their additional income and that increases demand for goods and services.
I don’t know if low-wage workers deserve a wage; that’s a matter between them and their employers. If they need a higher wage and their current employer cannot provide it, they are always free to pursue employment elsewhere.
Benner’s argument is the most intriguing and is simply illogical. Even if we assume that the minimum wage workers will have more to spend with an increase, Benner fails to consider that this money has to come somewhere. When the cost of producing a product rises, companies must raise prices. If consumers cannot completely absorb the price increase, then some companies will be forced to lay-off workers or they might fail altogether. Even if consumers pay higher prices to support the increased wages, the additional income of the workers will be offset by the increased prices. No new spending is added to the economy.
This folly can be further exposed by making an absurd argument. If an increase to $15 is good for the economy, then why not raise the minimum wage to $50. The latter is obviously ridiculous, but the reasoning is the same as the with the former.
From an employer’s perspective, an individual is hired because that person contributes enough to the business to pay his or her wages. If the employer is required to pay more than the employee contributes, then the employer must find ways to reduce the workload or get more out of the workers. Whether it’s providing a lower quality of service, demanding more effort from the employee, or outsourcing, companies must make changes as needed to get their expenses in line, resulting in fewer workers at the higher wage.
Unfortunately this proposal is just another misguided proposal. Of course, this might benefit those of us who don’t live in Seattle if it passes.