Are minimum wages too low?

I think if you did a survey or poll, you'd find most people believe the minimum wage, at least in the United States, is too low. 

The idea of raising the minimum wage is noble and commendable, but many of the arguments rely upon raw emotion and neglect sound economic ramifications that will adversely impact the same people it's trying to help.

In some respects, minimum wages are price controls. Historical and empirical evidence strongly suggest that price controls mandated by government has negative economic consequences.

In 2008, economists David Neumark and William L. Wascher surveyed two decades of research into the effects of minimum wage laws. They focused on five areas: the effects of minimum wages on employment, minimum wage effects on the distribution of wages and earnings, the effects of minimum wages on the distribution of incomes, the effects of minimum wages on skills, and the effects of minimum wages on prices and profits. Here is what they say about the policy’s impact on each:

1. Minimum wages reduce employment
2. Minimum wage hikes reduce the earning of low-paid workers
3. Minimum wage hikes make some low paid workers better off at the expense of others
4. Minimum wage hikes make young workers less skilled, lowering their future earnings
5. Minimum wage hikes make products and service more expensive

Raising the minimum wage has a number of serious and negative unintended consequences. Employers, especially small family and midsize businesses, are disproportionately hurt by the extra costs incurred. The local neighborhood stores and businesses with razor-thin profits will be forced to raise prices to make up for the addition labor costs. With the increased prices, customers may elect to take their business elsewhere. Losing customers means losing income, which could result in the business having to layoff workers.

Large corporations with big budgets will weigh the increased labor costs and elect to invest in technology to displace workers. This trend will soon become prevalent in the food service industry, hospitality, retail, construction and manufacturing. Amazon recently opened up several prototype Amazon Go stores that are self described as “a new kind of store featuring the world's most advanced shopping technology. No lines, no checkout—just grab and go!” Fast food chains and large department stores will follow suit and implement self-service checkout to save costs. Corporate executives will recognize that the $15 per hour could be routinely raised. They will weigh the future unknown costs associated with additional increases, coupled with the ever-increasing insurance costs, plus the time-consuming task of finding employees, training them and dealing with turnover. It's easier and less expensive to have technology take over. The unintended consequence will be that there will be far fewer jobs available for those that need them most.

While some people may benefit with an increase in their hourly earnings, other employees will be let go to save costs. Employers may elect to cut hours across the board for everyone. Whichever way the employer goes, some of the workers will be in a worse situation. Seattle’s move to $15 an hour, a few years ago, resulted in workers given fewer hours and experiencing a net loss in pay.

However, this situation could lead to dissatisfaction among the more experienced and skilled workers, who are getting a mandated pay raise.

We would better serve this segment of the population if we allocated money to train people to enter areas in which there are shortages of workers, such as the trades. We should offer apprenticeships to learn marketable skills in a specific trade. If a person could learn to become an electrician, carpenter, plumber, heating and cooling professional or mechanic, they could built a long-term financially rewarding career. Continuing education, computer training and career coaching would help people too.

If you’re in a job earning a minimum wage, I’d like to share some advice. Use this opportunity to learn. Show up early, work hard, stay late, assume responsibilities, seek out new challenges, ask a lot of questions and take pride in your work. If you work at a fast food restaurant, strive to be a manager, then a district manager and maybe set your sights on opening a franchise of your own. You don’t have to settle with where you are at now. View where you are currently as a temporary stop along your journey toward success. The bottom of the wage ladder is not meant to be permanent, nor a career.

Switzerland, which has no official minimum wage, other than what is negotiated by unions, etc., has one of the lowest unemployment rates in Europe: 3.2%. Unemployment for youth is even lower: 2.4%. In France, which has one of the highest minimum wages (and there are other factors for this as well), has a much higher unemployment rate of 8.5%.

In conclusion, what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment.