“Wouldn’t everyone like to be paid higher minimum wage?” I think to myself as a poor college student. It is no secret that Democrats have been attempting to raise the minimum wage for several years now. Most clamoring for a $15 federal minimum. And while I won’t lie, that sounds incredibly nice: Is that really what is economically best for everyone?
The Issue
The federal minimum wage has not been raised since 2009. This has left many Americans feeling as though they are being criminally underpaid for their work. Some find that they cannot afford housing and living expenses on such a low minimum wage, or it does not enable them to provide for their families.
An article by the Economic Policy Institute says that “a $15 minimum wage by 2024 would generate $144 billion in higher wages for workers and would also benefit their communities. Because lower-paid workers spend much of their extra earnings, this injection of wages will help stimulate the economy and spur greater business activity and job growth” [1].
Sounds good right? A minimum wage increase would increase wages for the lower class and help impoverished Americans. It could stimulate economic growth as those workers pour back into their communities. So what is the problem?
The problem is that the Economic Policy Institute forgot basic economics.
The Reality
Trying to artificially control a free market is always a bad idea. Let’s refer to this graph:
At the intersection of both of those lines is a Market Equilibrium. This is where the amount of jobs supplied and the amount of jobs demanded meet. There is just as many people wanting jobs as there are jobs wanting people. This is a good place to be. But we can see by raising the minimum wage past market equilibrium, we create an issue.
The amount of jobs demanded goes up. More people are trying to get a job at $15 an hour, as opposed to getting one at $7.25. But the amount of jobs supplied goes down. If employers have to give everyone $15 an hour, they will hire a lot less people. The gap in-between is the unemployment line. Where more people are demanding jobs, but there are less jobs to go around.
We can already see this happening. Studies are showing that California will lose 400,000 jobs by 2024 [2]. Four Hundred Thousand. And this is in a higher income state. In the state of Virginia where I live, a minimum wage increase to $15 an hour would effectively wipe certain towns off the map [3]. Smaller towns simply cannot afford a wage increase.
In South Africa, workers in factories who are illegally being paid less than minimum wage are protesting when those factories are shut down [4]. Because few businesses are willing to employ low-skill workers for higher wages, most of them are left without any job at all.
Conclusion
I get why people want higher minimum wage. But the statistics simply do not back up the claims. Good intentions can ruin lives. A substantial minimum wage increase would only serve to widen the poverty gap, not reduce it. To stimulate economic growth, it is best to just leave wages alone.
[1] Why America Needs a $15 Minimum Wage. (2017, April 26). Retrieved from https://www.epi.org/publication/why-america-needs-a-15-minimum-wage/
[2] Saltsman, M. (2017, December 15). Why The $15 Minimum Wage Will Cost California 400,000 Jobs. Retrieved from https://www.forbes.com/sites/michaelsaltsman/2017/12/15/why-the-15-minimum-wage-will-cost-california-400000-jobs/#25e2172343b9
[3] Millsap, A. (2017, March 10). A Statewide $15 Minimum Wage Is A Bad Idea. Retrieved from https://www.forbes.com/sites/adammillsap/2017/03/10/a-statewide-15-minimum-wage-is-a-bad-idea/#63b7db015d4a
[4] DUGGER, C. W. (2010, September 26). Wage Laws Squeeze South Africa’s Poor. Retrieved from https://www.nytimes.com/2010/09/27/world/africa/27safrica.html?rref=collection/timestopic/
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