The majority believed the Titanic was unsinkable. The majority also believes the potential benefits of minimum wage outweigh the potential drawbacks. Will minimum wage, like the Titanic, hit a proverbial hidden iceberg causing grave injuries?
After detailing cited effects of minimum wage legislation, it is time to contemplate the question of who benefits and who is harmed by minimum wage laws.
Please do not short circuit a thorough understanding of minimum wage effects. It is important you understand why there is support and opposition to increase the minimum wage. Much has been written about the perceived effects of minimum wage and Part II includes a list of articles:
- Minimum Wage Part I: For and Against
- Minimum Wage Part II: Cited Effects
- Minimum Wage Part III: American Samoa, The Face of Minimum Wage, and Sound Cited Effects
- Minimum Wage Part IV: Uncle Rico, Buzz Lightyear, and Questionable Claims
Prior to any discussion, it is critical to understand the assumptions thoughts are built upon.
- Assumption #1: Minimum wage has been set above the market wage in certain occupations
- A minimum wage below market wages has no effect. For example, applying a minimum wage of $10 an hour to neurosurgeons will affect nothing. (other than wasting tax payer resources paying officials to enact a useless law)
- Assumption #2: Long term, sustainable growth is preffered
- Prosperity can also be short circuited resulting in immediate gains at the expense of long term, sustained growth and prosperity.
- Assumption #3: I am for increased prosperity for all (including equal treatment of all ages, genders, race, income status, etc.)
Who Benefits?
- Politicians
- Gain votes by giving people what they are asking for (minimum wage) instead of what they truly desire (increased prosperity).
- Foreign Countries
- Increasing production/service costs at home increase the competitiveness of other countries who enter the market (China, India, Mexico, SE Asia).
- Tariffs are the next peddled action, but tariffs hurt all of America by forcing us to buy higher priced, poorer quality goods and services (in terms of subjective value).
- Some low wage workers
- Benefits workers who receive a wage increase who otherwise would not have (assuming their work hours are maintained)
- Macpherson and Evans found ~2/3 minimum wage workers received a raise within one year. Thus ~1/3 of low wage workers who retain prior levels of employment and hours may benefit from minimum wage increases after 1 year.
- These findings do depend on the level minimum wage
Who is Hurt?
- Middle class
- Receive none of the benefits (increased wages) yet pay a large share of the costs (higher product and service costs). A double whammy.
- Low wage workers
- While some will benefit, more will find it increasingly difficult to find long-term employment (see Part III).
- Companies will choose to take business overseas
- Some find this unpatriotic, however often the choice becomes move the business or go out of business. I’m not sure it is patriotic to shut down business entirely.
- Low wage workers will bear the brunt of increased consumer prices. They both consume a greater percentage of low cost goods and services compared to the middle and upper class, and have less discretionary income to cover the increased costs.
- Upper class (least affected)
- While they will pay increased consumer costs, they consume less low end products than the lower and middle class. In addition they are able to withstand increases in consumer prices more than low and middle class workers due to greater incomes.
- Domestic Producers
- Less able to compete in the global marketplace
- Economy
- GDP will likely fall due to less production occurring at home secondary to businesses moving operations to foreign countries.
- Law abiding citizens
- Favors under the table cash payments which hurts job prospects and increases the tax burden of law abiding citizens.
As some Titanic passengers found safety in lifeboats, some will escape increases in minimum wages unscathed. However, I believe more will find themselves fighting for economic survival rather than floating safely in a lifeboat.
