Should the US increase its minimum wage?
- By Tylor Claggett
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E-mail China.org.cn, October 18, 2013
Every few years, the U.S. debates, "Should there be a minimum wage and, if so, should we raise it?" At first, it seems like a humane thing to do, as there is no doubt that many Americans and their families live below the poverty line. But, deeper reflections suggest some very inhumane consequences.
The classic economic argument is that a wage rate increase above the market clearing price increases unemployment for two reasons. Employers will forgo hiring some workers because their contributions are now less than what it costs to employ them and more people will be looking for work because of the higher wage rate. This argument applies to all wage levels as an increase in the minimum wage pushes up all wages. Beyond this academic argument, there are common sense reasons not to increase the minimum wage or, perhaps, do away with it all together.
For example, many teenagers learn good work habits and skills by taking afterschool part-time jobs. If the minimum wage is too high, employers cannot afford to offer such opportunities to young people and a valuable training avenue is lost.
More to the point, many workers today, especially those at the minimum wage, are easily replaced by automation. This is becoming more and more prevalent as technology advances, for example self-check-out lines at supermarkets and ATM machines instead of traditional walk-up banks. Recently, more than one fast food chain has stated that rising labor costs would hasten the use of automation in their restaurants. I can easily envision fast food restaurants consisting of many machines dispensing menu items when patrons swipe debit/credit cards or use cash. The only workers would be the people in the kitchens supplying the menu items to the machines. Machines can take the orders and make change. How many workers that serve customers would lose their jobs if such establishments invested heavily in automated dispensing equipment? Such investments would be much more attractive if the minimum wage were increased. The greater number of technicians needed to manufacture and maintain these machines would most likely be a mere fraction of the displaced servers. The same scenario applies to many other industries as well.
Again, turning to classic economics, a significant increase in the minimum wage creates a more favorable environment for inflation. As said earlier, increased wages at the lower level push all wages up. Consequently, minimum wage and many lower wage workers could very well face market prices for goods and services that are proportionately higher than their increased pay. Therefore, their real wage rate would be reduced resulting in a lower standard of living.
Within many parts of the manufacturing sector, higher wages could force more jobs overseas as foreign labor rates would become more competitive than ever. Finally, the political battles over the minimum wage issues serve to increase the uncertainty already faced by U.S. businesses. This high level of existing uncertainty includes, but is not limited to, regulation, workers' rights, investments, capital markets and the environment. High levels of uncertainty are well documented as reasons the U.S. unemployment rate has been so hard to reduce. Business leaders simply do not want to make decisions that involve hiring more workers when they are unsure how productive those workers will be, let alone how much they will have to be paid in the long run.
Research shows that most worthwhile workers stay at the minimum wage rate for only a very short time, particularly if their employers recognize the real value they deliver to the enterprise. What a pity it would be if these American workers were never able to get their start? Finally, the unavoidable conclusion is, it is seldom wise to distort prices and, therefore, disrupt natural market forces. This is true no matter how appealing the short-run benefit appears to be.
The author is a columnist with China.org.cn. For more information please visit:
http://www.keyanhelp.cn/opinion/tylorclaggett.htm
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
