Documenting history as it happens.
Minimum Employment
As the national unemployment rate approaches ten percent (its highest levels in 26 years), its painfully obvious that certain states suffer disproportionately, for various reasons. According to the United States Department of Labor, by state, the three highest unemployment rates are: Michigan, with 15.2% unemployment; Rhode Island, with 12.4% unemployment; and Oregon, with 12.2% unemployment.
At the same time, these three states have relatively high minimum wages: Michigan and Rhode Island have minimum wages of $7.40; Oregon has a minimum wage of $8.40. Only one state, Washington, has a higher minimum wage, at $8.55; incidentally, their unemployment rate is ninth in the nation, at 9.3%.
Conversely, the three lowest unemployment rates in the nation are: North Dakota, with 4.2% unemployment; Nebraska, with 5.0% unemployment; and South Dakota, with 5.1% unemployment. Coincidentally, these states have their minimum wage statutorily set at the same level as the federal minimum wage.
In fact, if you access the Department of Labor’s data online, you will find a correlation between high minimum wages and high unemployment. Of course, other metrics are involved in causing particular states to have higher unemployment than others; Michigan is suffering its own plight with the collapse of the American automobile industry. Along with the success of their respective private businesses, higher tax burdens also help determine the economic health of states. From the data, though, the case can be made that a higher minimum wage contributes to higher unemployment.
That being said, today, 24 July 2009, our federal minimum wage has undertaken another 70 cent hike, from $6.55 an hour to $7.25 an hour. This is a result of legislation passed over two years ago during Madame Pelosi’s First 100 Days agenda; remember that? Of course, being against a federal minimum wage initially tends to rub people the wrong way; it is assumed I am against the working class largesse. A minimum wage increase, however, is detrimental to the health of our economy in two distinct ways:
First, it guarantees that less people will be employed. Let’s say an employer has within his budget $500,000 a year for labor. If he or she were to hire employees at yesterday’s $6.55 minimum wage, at 40 hours a week for 50 weeks out of a year, he could employee 38 people; at today’s $7.25 minimum wage, he can only employ 34 people. It’s basic math; no matter what the job is worth, four people will become unemployed in that particular scenario.
Second, a minimum wage increase lowers our overall standard of living. Consider the fact that those who were making 70 cents an hour more than minimum wage are making nothing but minimum wage today. Consider who actually makes minimum wage: teenagers and part-timers. Less than one percent of wage earners work for minimum wage, and only one in five workers earning the federal minimum lives in families below the poverty line. Sixty percent of minimum wage earners work part time. Consider the entities that employ workers for minimum wage: restaurants and department stores. To pay its workers, the price of its goods has to rise. The cost-of-living goes up, and I would argue, disproportionately affects the working class more, as their wages will be the last to follow the correlated inflation of the price for goods and services.
Each state has its own associated cost of living and issues concerning employment. Why each state is not given the right to set its minimum wage – below that of the federal government’s – is beyond me. Trust me when I say that ten dollars goes a lot further in rural Texas than it does in Arlington, Virginia. This kind of deregulation would require support for state autonomy, though, an idea considered archaic and adverse to the change this nation most recently elected into office.
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I love this correlation on paper. I find myself arguing with many people on how the mimimum wage is bad for employment. But, after reading the above I thought of something else. I guess that I could be totally off base here, mainly because I dont work in HR and I’ve never hired or fired anyone, but here it goes. Could it be that employers base skilled workers’ salaries off of the mimimum wage? Obviously there is a correlation because(in retail) there isn’t much of a gap between salary and hourly pay. I think many employers base wages off of the minimum wage. It seems as if the minimum wage is doing a job that it wasnt intended to do and not the job it was created for. What do you think?
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Economic growth has been equated to a rising tide that float all boats; raising the mimimum wage, however, does not result in uniform inflation. Therefore, some boats won’t float when the 70 cent tide comes in.
You are correct in saying employers base wages off the federal minimum instead of a preferable living wage, based on supply-and-demand. Leftists would argue that cheap labor is exploited absent a minimum standard; I have observed this to be untrue. In the case of migrant workers, when Hurricane Ike rolled through my hometown, manual laborers collectively organized and set their minimum at ten dollars an hour. With all the work, and few workers to do it, their cheap labor was no longer cheap, and certainly was not exploited.
The market will bear the price of work for its value, based on the simple supply of labor, and the subsequent demand for it. To beat the curve, workers gain skills in different areas. Skilled labor is able to demand a wage for their work, as it is considered to be at a higher value. This justifies multi-million dollar paychecks for executives like Steve Jobs and Richard Branson; their character defines their multi-billion dollar companies.
This cycle is broken by government intervention. As in the case with pigs during the Great Depression, artificial price floors will generate surpluses and can have devastating consequences (six million pigs were slaughtered during the New Deal to set a price floor, while some Americans starved). As in the case with our national sugar quota, price floors force demand into unforeseen areas. America’s sodas contain High Fructose Corn Syrup for a reason; similarly, people hire illeagal workers for a reason. Price floors push goods out of the market, while wage floors push people out of the market.
So while increasing a wage floor will eventually increase all wages, what is the ultimate cost of doing so? A laborer with any kind of skills that could have enabled him to demand 70 more cents an hour, now, effectively, is a minimum wage earner.
No one gains employment from a poor person; dictating to an employer what he has to pay a worker means less people are ultimately employed, plain and simple. As we approach ten percent unemployment, I would simply submit that now is not the time for this kind of intervention.
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Well, since the Federal(private banks) Reserve can print money out of thin air to support our fiat monetary system delflation should occur at some point…?
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No, I think inflation occurs due to the printing of money. This should kick in when people start really using money again. Since the FED has hyperactively printed money, hyperinflation will be the result.
I have thought about this, and I might be wrong; I don’t know what combined effect is, but I think raising the minumum wage has a separate effect on inflating our currency than the printing of money does. Ultimately, I believe the combined effect will be more inflation, instead of deflation.
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Inflation is what I was talking about due to the printing of money at such an incredible pace. For some reason I want to believe that the printing of more money and the rise in the min. wage(which will mean the raised prices of goods and services) wouldnt create an inflation problem. I still believe both are a bad idea but it seems that if both rise at the same rate, which they should, I dont see how inflation would occur.
