If you’re a cashier at a fast food restaurant, fifteen dollar minimum wage probably sounds pretty great to you. If you are a small business owner, the prospect of a fifteen dollar minimum wage probably sounds pretty scary to you. If you are a college graduate with a good job, the prospect of a minimum wage, especially a fifteen dollar minimum wage, should frustrate you.
Let’s start with the business aspect of minimum wage. The money used to start a business comes from the business’s original investors. After the business is turning a profit, the investments are paid back, usually with some form of interest (whether it be interest on a loan or in the form of a stake in the business). A business turns a profit by taking in more money than it spends. Businesses spend money on supplies, utility charges, taxes, rent, and wages. Thanks to the capitalist market, all of these expenses have set prices based on their value to consumers. Also thanks to capitalism, the business owner has the freedom to find a price they deem fair for their supplies and rent. Savings on these expenses are passed down to the consumer in the form of lower prices. If a company has to pay less to provide a product or service, the product or service will be less expensive, as a general rule. Additional profit is invested back into the company in order to improve products or services. Either way, the consumer wins.
So now that you have a basic understanding of business, I pose the question, why aren’t wages the same way? Why can’t an employer decide what their employees will earn? In truth, they should be able to. The free market ensures that employees get paid what their time is worth. If an employee does not like the wage that a business is offering, they can choose to find another place to work. You make more or less money based on your level of education and experience, among other qualifications. Artificially raising wages diminishes capital, so instead of money getting reinvested into a business to improve the product or service and being used to raise the wage of the employees, it is used to pay starter-level employees with no work experience, who stand behind a counter and take food orders all day.
Now, the consumer aspect of minimum wage. In the land of make-believe, everyone making more money sounds very great. Unfortunately, in the real world, there are consequences to paying entry-level employees too much money. In the free market, if an entry-level employee is paid too much, the business will adjust their wage accordingly, in order to provide the best product or service to the consumer. However, with a minimum wage in place, that is not possible. So how do businesses account for this? They raise their prices. The business does not gain enough money to effectively reinvest in their company. As a result, the consumer suffers, and so does the business. The business can not hire as many employees to serve the customer, the product or service they provide is of lesser quality than if they were able to invest more money into it, and the prices of the product or service are higher than they would be with the absence of the minimum wage. This is the case for a lot of businesses, but some do not have enough demand to be able to raise their prices, so they go out of business. This means less jobs, and less choices for consumers when deciding what businesses they want to patronize.
Another consequence of minimum wage is something we are witnessing now. As minimum wage employees demand more money, large companies that employ thousands of entry-level workers will find ways to minimize the number of hours employees work, or minimize the number of employees altogether, because they are not able to cut wages. For example, in most McDonald’s restaurants now, there are touch screen stations where you can order your food as an alternative to ordering at the counter. The cost of these ordering stations is the minimal amount they add onto the electric bill and the one time cost of putting them in. The 2-4 cashiers at the counter can be replaced by 2-4 machines that pay for themselves over time. There are 14,000 McDonald’s restaurants in the United States. Even going off of the more conservative figure of 2 jobs per restaurant, that is 28,000 jobs lost at McDonald’s alone because of minimum wage. While this does create jobs in the technology industries that manufacture these devices, poor people still suffer because they are losing entry-level jobs. In addition, the alternatives to having a living, breathing human to do a job are inefficient, and are only being used out of necessity as a result of the minimum wage.
When businesses raise their prices, as they are forced to do when a minimum wage is present, the salary of a non-entry-level employee does not go up to reflect the change in price. So if you are a college-graduate with a good job, your degree is effectively not worth as much because entry-level employees are getting paid too much. In the long run, the minimum wage hurts everyone, unless you plan on being in an entry-level job for the rest of your life.