Minimum wage in the United States began during Franklin Delano Roosevelt’s New Deal in the Fair Labor Standards Act.
Since then, the federal government has raised the minimum wage 22 times in 78 years, often to keep up with inflation.
During the 2016 presidential election, Senator Bernie Sanders made raising the minimum wage a key part of his party’s platform.
Even after he lost the nomination, Hillary Clinton absorbed this idea inter her campaign.
Their argument was that an increased minimum wage would give greater spending power to those living off minimum wage jobs and help them escape poverty.
However, there are several economic problems with this theory
1. Higher minimum wage does nothing to reduce poverty.
Studies have shown that although some individuals benefit from an increase in their wages, many others will lose their jobs as companies can no longer afford to employ as many workers.
This also reduces the newly unemployed workers ability to be hired at another job, thus keeping them out of work and trapped in poverty.
The increase in minimum wage does not mean that a company will make more money and be able to retain all of their employees at a higher hourly wage.
It is important to consider not only the immediate effect of minimum wage but also the unseen impact that it can have on poverty altogether.
2. Minimum wage restricts free contract.
Because of minimum wage laws and other job restrictions there is a surplus of workers and a lack of jobs to employ those workers.
This goes back to the simple economic principle of supply and demand.
Because of governmental regulation which restricting workers’ right to choose and places the cost of work above the market price, there are not enough jobs to go around and individuals are left fighting for the remaining work, giving all of the power to the companies that are hiring.
Without these restrictions, wages would level out to the price determined by the current market and everyone seeking employment would be able to find work.
It would seem that if policymakers’ goals were to decrease poverty, more individuals at work would be the way to do that.
3. Minimum wage prevents people from getting job experience.
Many of those entering the job force are finding that entry-level positions often require several years of experience in a similar position.
How are individuals supposed to start in a job if it requires experience, particularly when the whole purpose of an entry-level position is to gain experience.
Many of these workers would gladly work for a lower wage in exchange for the experience they need but unfortunately, minimum wage removes that opportunity.
Minimum wage sounds like an enticing, easy solution for poverty, “just pay more”, but what is often unseen are the negative effects it can have on those it attempts to benefit.
If the federal government is serious about reducing poverty, the key is to remove harmful regulation that stagnates the job market; thus creating greater opportunity for all those seeking employment.
By David Kirk