Archive for June 23rd, 2008

Minimum Wage Mistake

June 23, 2008

When the Democrats took control of congress, one of the first things that they did was to make substantial changes in the minimum wage.  I was surprised that it was accomplished without much opposition.  At the time, the economy was straining, but managing to maintain a minimal forward progress.  At least it seemed so to me, I am not an economist, at least not on the national scale. ( I know about personal finances and church budgets.)  I remember at the time hoping that it would not lead to economic troubles.  I was concerned for primarily three reasons.

1.  Companies that pay minimum wage to their employees would have a substantial percentage increase in their labor cost.  This increased cost would either be absorbed by decreased profits or passed along by increasing prices, or making cuts in other areas.  For companies that could not absorb the changes, there would be some closings.  So increasing the minimum wage would result in less profits, higher product cost and fewer jobs.  

2.  When the minimum wage is increased, everyone else that makes more than minimum wage does not automatically get an increase, so that where a person was making two dollars more per hour than the minimum wage, now, if their wage is not increased, their pay is no longer so favorable in comparison to the minimum wage.

3.  In raising the minimum wage, what has actually happened is that a basic hour of work which used to be valued at a certain price, now costs more.  What you have actually done, is lowered the value of the dollar.   It takes more dollars to get the same unit of work. 

I know that national economics are affected by much more than the minimum wage, but I thought that it was a mistake at the time and I have not seen anything to change my mind, it has only been reinforced.  As the next stages of raises are put into effect I believe that it will continue to negatively impact the economy. 

Is it too late to stop the next raises?