Sunday, February 9, 2014

Minimum Wage A Weak Link To Inequality

Recently many people have latched on to the idea that raising the minimum wage will help to lessen inequality. The President has made a lot of noise with this "populist issue" declaring it only fair. Unfortunately raising the minimum wage will make America less competitive and it will reduce opportunities by giving employers less incentive to hire. It will cause small businesses to cut hours and reduce the number of employees working at any one time. Shorter hours and a drop in service will add to the reasons that small businesses often fail to compete and are forced to close their doors.

It should be noted that the price of living varies considerably across the nation and from community to community. This means changes in the minimum wage will destroy and impact jobs in some areas far more then others. Money is a short term motivator, while people getting higher wages might boost their performance and production it is often temporary at best but raising the minimum wage will usher in a host of higher prices and these tend to effect low wage earners the most. Cost shifting, subsidizes, and high minimum wages all increase prices and are key causes of income inequality. 

 If people are willing to work for a little less money more jobs would be created at a time when many Americans claim they have been looking for employment and will do almost anything for work. Yet the President issues a call to raise the minimum wage. How do we reconcile these issues that seem at odds? This could be called a "tale of two cultures." The crux of the employment problem, is both cultural and structural in nature. Much of it derives from unrealistic expectations created over the last decade by our growing government centered economy. Government employees are often paid better than in the private sector because government does not need to make money to exist.

Currently big box stores, fast food franchises, and hotels often pay low or minimum wage, while other small businesses are often forced to be more generous. The difference in wages is often because many small businesses need more from an employee. They must invest more in time, energy, and training, and they are hurt when employees leave. The fact is when people work in an environment where they must show more then minimum responsibility, and make even minor decisions, the mistakes and errors they make can be very expensive, and can make the cost of the worker far more then he or she is worth.

Raising the minimum wage is a strong negative to hiring in a small business where the owner or manager has to deal with the employee directly, this ties up their valuable time. Large companies often have departments or discipline channels that serve in the role of  "babysitter." Most employees generally do not recognize the cost of their working with constant cell phone interruptions, logging in on Facebook, shopping online, repeatedly plugging up a toilet, stopping to buy cigarettes, or the habit of always rushing off to use the restroom while a truck full of paid workers wait to leave for a job.

Many people forget it is not just the hourly wage we must look at, but the hidden cost of hiring must be factored in, such as the cost of training and all the liabilities of being responsible for their actions. Now add to that wasted time, risk, insurance, and more taxes. Hiring an employee is often a hassle and a marginal benefit at best. After a worker takes a job, and has proved their skills, reliability, and that they are indeed an asset and not a liability, only then are they be entitled to more rewards. Far better than expensive government job training programs that don't work these businesses are the "real training" ground for workers seeking jobs.

Like many employers I have become skeptical, of the benefit of adding staff in the current environment. I have been told many times by job seekers of their outstanding skills to later be disappointed. I have found that many workers that lost good paying jobs from better times when employees were harder to find are in reality slow, sloppy, or allow personal problems to keep them from showing up for work. They often overvalue their skills and that is why they are not working. In the end these people will be forced to accept lower wages or the alternative is they will just continue not to work.

Bottom line is if the minimum wage is increased do not be surprised if many businesses chooses to pass on more hiring or move towards automation and other labor saving alternatives to increase output. How to better share a societies work load and divide the fruit of our labor is an important issue but raising the minimum wage is not the answer. Yes, many people will do anything for a job, but it seems, they won't do that! By "that" I mean, do enough productive work that their employer actually "makes money" and profits from their labor.

Footnote; For more on the effect of long term unemployment on society and our culture see the posts below, comments are welcome and encouraged,


  1. In the capitalist world, the justification for wages is to make money and profit for their employer. In government, there is no such requirement. In a reasonable world, the justification for earnings ought to be the benefit to society from any enterprise, and the profit should be universal measurements in raising the "quality of life". Unfortunately, measuring that quality in currency, authority or consumerism has always proven foolish and society has to come to grips with the notion that being fed, housed and healthy is the fundamental reason for society, while any other pursuits are merely entertainment and sport, not critical survival systems. It seems to me that we could do without giant banks, giant stock markets, giant governments and giant insurance companies all trying to guarantee that nothing will ever change. We really do need to change our way of doing things!

  2. Some type of balance needs to be found. Big banks, big government, and most bigger then life institutions tend to distort and remove power from the people.

  3. Just index the minimum wage to CEO pay. THERE'S your win-win.

  4. The minimum wage was originally established to force wages paided in the South up so
    cheap southern labor couldn't under cut nothern wages. The minium wage never had anything to do with equality. It was promoted by the unions. It still has nothing to do with equality and is still promoted by unions so they can justify higher wage demands.

    1. Early attempts by labor unions to create a mandatory minimum wage were ruled unconstitutional by the U.S. Supreme Court on the grounds that they "restricted the worker's right to set the price for his own labor". This allowed employers to continue exploiting their workers through the Great Depression of the 1930s, when incredible demand for jobs caused wages to drop even further to an all-time low. With poverty becoming a huge national issue, President Franklin D. Roosevelt promised to constitutionally protect American workers as a key part of his 1936 re-election campaign.

      After winning the historical 1936 election by a landslide, President Roosevelt signed the Fair Labor Standards Act (FLSA) into law in early 1938. The FLSA introduced sweeping regulations to protect American workers from being exploited, and created a mandatory federal minimum wage of 25 cents an hour in order to maintain a "minimum standard of living necessary for health, efficiency and general well-being, without substantially curtailing employment