Minimum wage increase could hurt workers, consumers and economy

Regan Williams

Regan Williams

As announced in his State of the Union Address, it seems that one of Obama’s major goals for his term is raising the minimum wage to $9.50. At face value, this idea seems like a good idea to help get the poor more money. However, I question this assumption.

In reality, it seems like a bad idea that will just lead to fewer jobs, a rise in prices, along with harming employees as a whole. It is simple: If minimum wage is raised, the profits of a corporation do not suddenly increase. Therefore, their ability to pay does not increase.

Imagine that a corporation has $20 to pay all its employees. Now with that $20 a corporation pays four employees $5. Then minimum wage goes up, now a corporation still has $20 but can only hire two employees. This means that, yes, the purchasing power of two individuals may have gone up, but the power of two individuals has gone to zero. This means the economy has not benefited because there are not more jobs. In fact, there is actually a decrease.

Beyond job losses, raising the minimum wage will just lead to an increase in prices for the consumer. In order for the corporations to keep the essential workers they need to increase the amount of money they get since they will not take a cut in profits.The corporations will need to increase substantially in order to keep the same profits, and everyone knows that the investors will be willing to cut profits, but they will gladly increase prices.

To continue the analogy from before, the same corporation has $20 to spend on labor and they sell a product for $5. This covers all of their costs and gives profits. This corporation needs to have four employees in order to function; however, because the minimum wage was raised and they only have $20 to spend on labor, they need to increase the product cost to $7 in order to offset the increased cost. This means the consumers will have less money to spend on all of the products they want to buy.

Finally, raising the minimum wage harms workers. Employees who make minimum wage at most stores tend to be the less experienced workers than the ones who make more money. However, if minimum wage is increased, the less experienced workers will be making the same as the more experienced workers, as the corporation cannot afford to pay the more experienced employees more.

Different people do different amounts of work and as such, they deserve to get paid more. If the same corporation still has $20 to spend, it decides to hire three employees. The corporation has to have three employees, so it pays one $10 because this employee does more work and has more experience than the other two, who get paid $5.

If minimum wage goes up then all three employees are now making the same since the corporation cannot afford to pay the employees more. Thus, the employee with the most experience gets harmed because they are now making the same as employees with less experience.

Increasing the minimum wage is bad for workers, the economy and consumers. Corporations need to make money in order for the market to survive. In order to protect the market, we need to protect the current minimum wage level.

Regan Williams is a junior majoring in political science and communication studies. His column runs biweekly.

  • Sean

    The same arguments were made when a minimum wage was initially instituted. Being paid more money means people have more money to spend, which is ultimately better for companies and the economy as a whole. Though, honestly, economics is a massive crap-shoot anyway. But many companies can easily afford a cut from, say, the CEO’s paycheck to bump up the pay of the lower-wage employees. They just don’t like doing it. Still, every time something like this has been done, companies have complained and somehow survived. Your argument would suggest that we’ve either achieved the perfect paradigm of minimum wage or that paying employees less is better for the economy. Both of which are rather odd stances to take.

  • http://www.facebook.com/profile.php?id=1119870769 John Davis

    This line of thinking is certainly logical, but I think it misses a larger context.

    Two-thirds of minimum-wage workers are employed by Wal-Mart, McDonald’s, and Yum! Brands (Taco Bell, Pizza Hut, KFC, and Wingstreet). Even if they had to increase prices to afford an increased minimum wage (which on its face is an absurd idea, because all three companies are generating higher revenues than before the recession), it would amount to pocket change.

    The thing about working at these companies, though, is that the wage workers earn in a way forces them to shop at places like Wal-Mart, because that’s the only place they can afford. Increasing the minimum wage gives the bottom earners more purchasing power, allowing them to be more discriminate about the places they spend their money. This in turn helps local businesses grow simply because more people can afford their product. That growth then helps them do things like higher more people or pay existing workers better wages.

    The biggest concern I have about this issue is that people immediately think about how increasing the minimum wage impacts corporate bottom lines as opposed to how it impacts the people (and their communities) who actually receive the wages. It speaks to a very uncomfortable complicity with impersonal and not-at-all altruistic forces that don’t have much (if any) accountability for the effects it has on the micro level.

    Side note: Adjusted for inflation, 1968′s minimum wage of $1.60 an hour would be $10.56 an hour today.

    • http://twitter.com/SmokeFreeUA SmokeFreeUA

      you posted an actual fact in your ‘side note’. unfortunately, the author of the CW article neglected to cite any facts.

  • http://www.facebook.com/frank.thagard.9 Frank Thagard

    “Regan Williams is a junior majoring in political science and communication studies.” I’m sure this guy has a brilliant future ahead of him pumping out barely literate crap like this at some think tank.

    • http://twitter.com/SmokeFreeUA SmokeFreeUA

      “Obama wants to give the poor more money”.

      So Regan Williams automatically wants to give the rich more money?

      I too can make strawman arguments!

  • Pantagruelle

    Instead of spewing the same old Republican rhetoric, long on ideology but short on facts, it would be helpful if you actually had proof for your unfounded assertions. In reality, paying workers a higher minimum wage actually leads to increased business for the corporation, as this story comparing Costco to Walmart shows:
    http://www.politicususa.com/costco-proves-republicans-wrong-paying-living-wage-watching-profits-soar.html
    Why anyone would think that keeping poor workers poor is good for anyone but the extremely privileged 1% defies reason. And for the record, neither you nor anybody else at UA is in the 1%, so you are effectively arguing against your own interests.

  • Roger Stapp

    I worked at Wal-Mart and started at the minimum wage. I worked hard and my wage went up by $2.50 in one year. Hard work pays off. It is hard for me to imagine some lazy Joe getting rewarded for not working hard while I busted my butt to get that raise. It is not fair to force companies to pay high minimum wages without giving them the power to remove a worker who has not worked hard enough to earn that wage. After all, you do not have to be a brain surgeon to work at Wal-Mart.