Raising The Minimum Wage Has Consequences

On January 1st, eight states and the city of San Francisco raised their minimum wage by an average of 33 cents per hour. For the minimum wage worker, this means an average annual salary increase of $686. But, for the business owner, his/her profits (if any) will be reduced by $686 for each minimum wage earner that they employ. Some businesses will handle this wage adjustment by hiking their prices; meaning that ultimately, you and I will pay the price. At the same time, the state coffers will benefit from those higher prices because most states have a state sales tax that is calculated on the basis of price. For other businesses, who, because of competition, can't raise their prices, this new wage might either force layoffs or delay any new hiring. At the very least, it means that Uncle Sam will lose tax revenues because that $686 per worker's pay increase will be moved out of the highly taxable "business profits" category and into the untaxed low income tax status. In some extreme cases, where a business was already struggling, this new salary burden could mean an end to that business with all the workers losing their jobs.

Liberals seem to think that raising the minimum wage only affects the pay of low income
workers. They're absolutely wrong. First, many union contracts have clauses that force automatic pay increases whenever the minimum wage is increased. So, the impact of a raise might actually spread to some businesses who don't even have any minimum wage workers. Second, upping the minimum wage will often create bottom-up wage pressure. Often, this is simply because a minimum wage earner winds up being paid more than the more experienced worker who previously had the higher salary. As result, employers are forced to give wage increases to non-minimum wage employees in order to maintain a logical pay scale structure based on seniority and experience.

Just yesterday, I heard a liberal guest on a talk show argue that raising the minimum wage will give the economy a boost by putting more spending money in the pockets of the low income, wage earners. That might be so. But, on the other hand, raising wages is no different than raising taxes on the job creators; and, every economist knows that raising taxes in a weak economy will only produce an even weaker economy. In fact, there has been a lot of research into the effects of raising the minimum wage. Often the conclusions of that research show that more harm than good is done causing forcedlayoffs, raised prices, and new hiring delays.