For an opposing viewpoint please see the other side of this Point/Counterpoint article here.
Ask any of your friends what the current minimum wage is and you’ll get a wide range of answers. For example, on my facebook page, I asked: “Without looking it up, what is the current minimum wage?” A number of guesses were sent back ranging from $5.85 to $8.00 per hour.
These were all fine responses but, I confess, it was a bit of a trick question. In reality, the minimum wage is zero. True, federal and state governments have set wage laws making it illegal for employers to pay less than $7.25 per hour (the current federal and Arizona rate) for labor. But for the unemployed that are priced out of the labor market, the real ‘minimum wage’ defaults to $0.00 per hour.
What does it mean to be priced out of the labor market? If an individual’s productivity is not equal to or greater than $7.25 per hour, then that person is unlikely to be hired. Essentially, any increase in the minimum wage eliminates those workers on the productivity margin.
Over half of those earning the minimum wage in the U.S. are between the ages of 16 and 24. Therefore, labor market distortions can significantly impact youth employment prospects. The overall teen unemployment rate peaked at 27.6% in October 2009. And for black teens, the jobless rate reached a catastrophic 50% this past November. To address the high unemployment rates, Arizona legislator Laurin Hendrix is proposing to cut the minimum wage for Arizonans, 22 years old and younger, to 75% of the state’s current minimum wage level. If his bill is approved, teens and young adults could be hired for $5.44 per hour.
Decreasing the cost of labor will create demand for it. In business, as Thomas Sowell, economist and senior fellow at Stanford’s Hoover Institute explains, capital competes with labor for employment. He summarizes that many goods and services can be produced either with much labor and little capital or much capital and little labor. In other words, if wages are arbitrarily raised above a competitive level, then business investments in machinery and automation become relatively less expensive.
Consider McDonald’s and other fast food chains that are common teenage employers. If labor laws make wages too expensive, the restaurant chain may consider, for example, replacing an employee with an automated machine or new production process. Or the restaurant may just decide to outsource its drive-thru operator to a central call-center in India. Lowering the minimum wage, as Rep. Hendrix proposes, will keep labor competitive and employment opportunities available.
However, it is also worthy to note that the damage caused by minimum wage displacement is not limited to short term income troubles for young workers. The entry-level job skills that young workers learn in their first jobs can have a significant impact on their future job earnings. In this manner, labor market distortions can impact those adversely affected for a lifetime.
Calls to increase the minimum wage, or provide a ‘living wage’, are usually based on appeals to compassion. But in reality, there is nothing compassionate about the consequences. Despite their continuous toiling, lawmakers will never be able to raise the minimum wage above zero.
Instead, a sensible economic solution limits the government’s interference. Lower the minimum wage. Do it for the children.
For an opposing viewpoint please see the other side of this Point/Counterpoint article here.
Neil Rosekrans
Neil Rosekrans is a founder and partner of StateBrief.com. He has been a guest political commentator for the Arizona Law Channel, NBC's Sunday Square Off and The Terry Gilberg Show on KFYI. Neil earned his undergraduate degree from Cornell University and earned his MBA and Masters in Public Policy, with an emphasis in International Relations, from Pepperdine University.
Neil and his wife, Beth, live in Scottsdale, Arizona. 
This is ridiculous! It’s slave labor. I worked one night last week for a small chinese rest. When I arrived for my first shift, I was informed that I would be paid $8.00 per hour. Pretty good for a waitress wage in Arizona, Right? Wrong! There was a catch….I did not get to keep my tip’s! All tip’s were given to the owner & their family member’s. This would have been fine if the tip’s “sucked” however, in 3-1/2 hours of work, I would have left there w/ $50.00 in tip’s! Instead, I will receive a check for $28.00 minus taxes. The owner’s had several container’s full of tip’s that they would grab and run to the back with and hide. The owner’s are getting “FREE LABOR” plus a profit off of their employee’s and I am willing to bet that they are not reporting the true amount of cash received under the table, (if any)! How is this even legal?
The work that service employee’s do is not less work than what minimum wage pay’s. When we receive a tip, it’s because we gave good service. Why do we get punished in our wages for doing service work? Pay full minimum wage and allow us to keep our tip’s, this will motivate low wage worker’s. I am not a big fan of Oregon but they allow their service worker’s to be paid fairly and have control over their tip’s.
Jodi
Jodi, who’s fault is it that you worked for that agreement, Seems like it takes two to Tango.
A free market, where individual value is placed(opinion), compels personal responsibility for outcomes.
If you live in a society that thinks the gov’t is responsible for outcomes and social justice, naturally you’re going to avert your personal responsibility and look for protection – which is exactly what minimum wage and labor unions are all about.
The only minimum wage is a wage that you personally are willing to accept – it’s the minimum you can agree to work for toward your own self-interest, not a wage set by government.
Ask yourself: what self-interest does gov’t have in setting a minimum wage? What social justice are they attempting to force upon Americans by wielding their power? Whose vote are they trying to buy?
Minimum Wage is extortion and another example of corruption within government. An owner, in freedom, needs to decide what to pay his labor. If he pays too little, he won’t get people working for him; he may have substandard service which won’t bring customers; he may have greater turnover which costs more money – in essence, the market speaks.
If an owner, in freedom, decides to pay a wage that another American wants to work for, what business is it of any other that he accepts such a wage? Only the value can be placed by the two individuals entering into such contract. VALUE IS SUBJECTIVE – personal opinion and nothing more.
Let each care for self and all will be cared for; each must negotiate for self
If an employee doesn’t feel he is paid enough, he can lobby to his boss for a raise; if he doesn’t receive it HE CAN LEAVE! People seek new employment all the time; everyday of every year, it’s nothing new.
Personal responsibility is the ability to respond to your choices. If you can’t live on a wage your employer is offering, then you have to adjust your life, your schedule, whatever it takes to make it work.
People want to be lazy; they want to be unproductive; they feel entitled; as a result they want gov’t to set a wage so they don’t have to be responsible.
While minimum wage may impact a true “mom and pop” operation I doubt it really cripples the Walmarts of the world.
I, like many, started off working minimum wage at $1.80 an hour. Like most high schoolers I spent it on gas for my car, insurance, dates for my girlfriend, clothes to wear to school, record albums, and put some aside for college. Much like my child did who worked at a chain sandwich shop to buy his first car before he even got his license to drive.
Many of these workers take these jobs as second jobs to supplement their main income and to keep their heads above water. Many of these jobs come without benefits. The only benefit being minimum wage. I doubt I would want to work some of these jobs for twice the pay wondering if the next guy in a hoodie coming into the store is going to buy a coke or rob me.
The fact of the matter is that the government has neither the legal nor moral authority to set an arbitrary minimum – or maximum – wage. As pointed out, setting an unreasonable ‘value’ on what, for the most part, is menial labor, such interference in the ‘free’ marked results in stifling emergent business, creating further unemployment, and destroying any incentive for advancement by self-improvement. Anything – goods, services, labor – is only ‘worth’ what a purchaser is willing to pay for it: By assigning an artificial value to (mostly unskilled) labor, the government prices it out of the market.
Clearly, some state legislatures don’t have a clue that a lot of kids are helping support their families. In addition, it’s the billionaires at Wal-Mart who will be the biggest winners. As usual.
I have heard a lot of talk about how minimum wage doesn’t hurt the Walmart’s world. What it does is just creates a disincentive for them to higher more workers. They will fewer workers at higher prices thus creating structural unemployment for today’s youth.
High minimum wages don’t raise the incomes for all workers just the workers that get to keep their jobs. It just gives more money to fewer people. If your not one of those lucky people that get to keep their jobs than too bad your pay rate went from 5.15 an hour to 0.00 an hour. http://bit.ly/bltsd9
Also Penn and Teller have a great video series about the effects of minimum wages and Walmart. http://bit.ly/bzyaDs
But if wages get too high they might not hire anybody at all they will just be replaced by machines. The check out clerks and ticket takers of yesterday are now replaced by check out machines that don’t need breaks require health insurance and don’t get sick.
Poor schools and high minimum wages is a double whammy for kids in poor neighborhoods. They don’t have the skills or the job history to get a higher paying job. But a job regardless of how poor it is teaches you basic life skills. Such as show up on time don’t talk back to your boss work hard. A job history will lead to a better higher paying job.
University of California – Irvine economist David Neumark has found that for every 10% increase in the minimum wage, the poverty rate increased by ¾ of 1%. The wage increase from $5.15 to $7.25 is a 41% jump, meaning there could be measurable adverse impacts on the poverty rate. In a 2005 study, Neumark concluded that “although minimum wages increase the incomes of some poor families, the evidence indicates that their overall net effect is, if anything, to increase the proportions of families with incomes below or near the poverty line.”http://www.american.com/archive/2007/july-0707/government2019s-helping-hand-also-hurts
David ~ Your response is excellent. People feel like a minimum wage hike is only fair. However, you present actual data that confirms the destructive nature of wage controls. Unfortunately, it usually takes more than facts to override beliefs and feelings.
ICONIC FREEDOM ~ You are spot on. Many people think they are entitled to a higher wage. No, you are not. You have the same opportunity to compete for positions and turn down positions as all other citizens. If the wage is not to your liking, you are not entitled to a higher wage. You are free to apply elsewhere.
It is amazing how many people espouse to champion freedom yet act to control the behaviors of others at every chance. You enjoy as much freedom as you foster for others. Business owners should be free to enter into employee contracts without government wage controls. Potential employees are free to compete and negotiate.
Reducing the minimum wage will create a lot of jobs. Many companies work their employees very hard because the cost of more employees is just too high. So the minimum wage causes the people with jobs to be forced to work much harder and it causes people who want jobs to not be able to get them.
But I do have one problem with this, there should not be different minimum wages for different people, that is plain unfair. If a company is not allowed to look at age why should the government have different rules for different ages. Also that part will surely get challenged in court.
“The entry-level job skills that young workers learn in their first jobs can have a significant impact on their future job earnings. In this manner, labor market distortions can impact those adversely affected for a lifetime.”
In all, I think this is perhaps your most significant point. I’m a Human Resources Manager for a mid-sized Freight Forwarding Company in Washington State. We start our entry level dock workers, on average at $13.00 hour (approximately $1.00 above the market rate). Washington State, as I’m sure you’re aware, has one of the top minimum wages in the country (I’m not sure where we fall at this moment, but we’re in the top 3, easy). The caliber of employee I have coming in at $13.00 an hour, is barely capably of meeting the minimum attendance and punctuality expectations; much less being able to creatively solve problems and find a work/personal life balance. I don’t think it is irrational to expect that a 20-30 year old individual be able to report to work on time, when they are scheduled. However, our number one reason for termination is attendance. It’s scary to think, but there are a vast number of people who lack the absolute most basic tools to be successful at working. What’s more, regardless of having “cause” or not, we’ll be paying unemployment when we terminate.