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Minimum Wage Increases

(Mon Aug 13 12:16:20 2012)

...And Why That Is A Bad Idea

I've heard politicians and armchair theorists alike suggest that raising minimum wage is a solution for getting rid of poverty. It makes sense on that first glance - if we pay the poorest people more, then they won't be poor! Yay!

But that's only the first glance. In reality, it's not even close to being useful. In fact, raising minimum wage will *hurt* the poor, not help them! Don't believe me? Well, here's an example:

Here we see Dollar Mart, a fictitious bottom-end store. Its employees are paid a bit over minimum wage, its prices are cheap, and its clientele are almost always, well, poor. Suddenly, a new law comes in; raise minimum wage by $1. Ok, says Corporate, I guess we'll raise minimum wage. Now, instead of (say) 15% of their employees being paid minimum wage, 25% of their employees are on minimum wage, because they lifted everyone to that minimum standard. Everyone making less than the new minimum wage got a raise, but everyone making that wage or better didn't see a single red cent, Roughly 20% of their employees saw some sort of pay increase - though only the bottom 15% actually got a full dollar. Everyone else had their pay increased by anything down to a single penny. Well, this means that across the nation, every Dollar Mart store is paying their employees just that much more; all those bills add up. They end the year with a loss. The next year, they have to raise their prices - not by a lot, just enough to cover expenses. Though, to be fair, their expenses have gone up - things like insurance, taxes, retirement funds, and so on all go up with an increase in pay. And remember - it's not just Dollar Mart that raised prices. Everyone from the gas station on the corner to Amazon raised prices.

Now, since Dollar Mart really does have decent prices, many of their employees shop there for things like basic groceries and other dollar-store items. When the store-wide price hike kicks in, the original 15% of employees will see a bit of a difference - their grocery bill went up, but so did their pay, so they end up a little better off. The break-even point is at about $0.75 - anyone who made seventy-five cents over the old minimum wage now makes just enough more to pay for the price hike. However, anyone who didn't get a raise with the new minimum wage is suddenly at a disadvantage - they are paying more for groceries, but haven't seen any extra money in their paycheck.

Now let's look at those bottom earners... the vast majority of minimum wage workers are youth - college student, high schoolers, and so on. About a quarter of them are 16-19, another quarter are 20-24; if you count all the under-25 crowd, you get 49%, or almost half of the entire minimum wage workers. And while I don't have and statistics to back it up, I would presume that the majority of those workers live with their parents, or have some other form of income, like Mom and Dad paying for college. I'll back this up with some more statistics: 31% of minimum wage earners have some college but no degree, 29% graduated high school, and 28% haven't even finished high school. That's 88%. Also, part-time workers are far more likely to make minimum wage: 13 part-time to only two full-time minimum wage earners. That means almost 87% of minimum wage earners are part time.

Numbers are fun to some people on their own, but without a real result, numbers are meaningless. So, what do all these numbers tell us?

First, almost half of minimum wage earners are high school or college age, and the vast majority are part time. There are two reasons to have a part time job: it's your second job to make ends meet, or you have other things to do, like go to school. Chances are, most minimum wage earners (not all, mind you) are employed only because they want a little extra cash, not because they are surviving with only that job.

Second, raising minimum wage raises prices. Maybe not by a lot, but it will cause prices to inflate, and there will be a cut-off point where an employee will see no benefit for his or her raise - followed by those who actually see their paycheck not go as far as it used to.

That paints a very strong picture; if half of minimum wage workers are high school or college age, and the overwhelming majority are part time, then it means that most people who get a raise due to increased minimum wage... don't care. They may live with their parents, or only have a job at school to pay for pizza money. They may have a second job where they make substantially more. They may be retired, and only have a job for fun, not for the money. But the end result is, a few more dollars a week really isn't going to make a difference. But what about everyone else? Those raises are paid by someone; the companies paying their checks will increase prices elsewhere, to cover costs.

In the end, a higher minimum wage only means you've made the entire nation poorer by $1. Everyone is $1 less rich. Prices go up with the wage; if you increase minimum wage by $1, you won't see canned green beans go up by a dollar, but you will see the go up by a penny. Or two. Or three. And the poorer you are, the more it affects you; every penny counts when you are skirting poverty, but the more wealthy can afford to deal with a price increase of a few cents. It doesn't affect the rich, but it certainly affects the poor. And to what benefit?

Only 6% of employees are paid at or below minimum wage. That means 6% of the population sees some benefit from this, while the other 94% see their paycheck cover less than it used to cover. But don't take my word for it - look at states and cities that have a higher minimum wage than the Federal one. Compare what a dollar will buy in, say, California, to somewhere like, say, Nebraska. And next time, think before you jump on a bandwagon. Sure, it's great to give the poor better opportunities... but is what you are proposing really a better opportunity, or just a way to make yourself look good?

And to be clear, I'm not arguing that a minimum wage is bad, or even that raising the minimum wage is a terrible thing. Just... be smart about it. Don't hurt 94% of the country to help 6% of the country that may not even need your help after all.



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This blag is tagged: Minimumwage, Rant, Statistics, All