Raising the Minimum Wage would be a Mistake

James Miller, Opinions Editor

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President Obama has described the 2008 downturn as “The worst recession since the Great Depression,” yet in pursuing a higher minimum wage, President Obama threatens to impair the recovery of an already weak economy, and, more importantly, to cause long-term damage to the American economy.

Should the United States institute a higher minimum wage, fewer jobs will be created and employers will be reluctant to expend capital. Henry Hazlitt, an Austrian School economist, argued in his 1959 work “The Failure of the ‘New Economics’” that one of the primary reasons the levels of employment failed to recover during the Great Depression was pressure from Presidents Hoover and Roosevelt on business leaders to keep wages artificially high. The higher wages for those employed, who had not necessarily earned them in the market, meant money was kept out of the hands of the unemployed.

Milton Friedman and Anna Schwartz, Monetarists from the University of Chicago, write in A Monetary History of the United States that artificially high wages, both in the Depression and in general, reduce employment. Logically it is clear that if employers are forced to pay $10 an hour to an employee who only produces $9 for the business, a manager will not hire the employee. Increasing the minimum wage will cost jobs, both by regulating employers’ capital and creating a price floor at which workers may sell their labor.

In addition, continued government intervention in the work place will discourage the private sector from new investments. With the Affordable Care Act, the federal government forced numerous businesses, justly or unjustly, to spend money on health insurance and on fulfilling the commands of the government bureaucracy. An increased minimum wage would change the business landscape in a similar fashion, altering the way businesses interact with the market.

In addition to the physical task of dealing with new regulation, a change to the minimum wage would worry business, forcing it to contemplate regulations and laws beyond healthcare or minimum wage and hold back hiring and capital expenditures, weakening the economy.

Reductions in employment and investment are short term problems. Economist John Maynard Keynes claimed that “We are all dead in the long run.” He was right, but the American economy ten or twenty years from now does matter. The long term cost of an increased minimum wage is what makes an increase so problematic. The Department of Labor reports that 31% of those making minimum wage are between the ages of 16 and 19. This statistic shows that teenage workers, without education or experience, are making the lowest income. However, teenagers still, despite the low wage, have an unemployment rate of 20% nationwide, and African American teenagers have an unemployment rate of 40%. This high rate of unemployment exists, in part, because many employers are not able to justify paying the current minimum wage of $7.25 to such low skill labor.

If employers are forced to pay these teens $10 an hour, they simply will not be able to hire them. Employing teenagers would not be cost effective. Without on the job experience, America’s teens will go into the work force with no experience, no knowledge of what a job is really like, and in some cases will not be able to support their families, or even afford college. The true damage of a higher minimum wage is that teens would grow up with less experience and no understanding of the workplace. The final result for many American teenagers, especially minorities, will be fewer opportunities to move up the economic ladder and achieve the American dream.

The Congressional Budget Office, the non-partisan financial calculator of the government, estimates that inflating the minimum wage to $10.10 an hour would cost the economy 500,000 jobs by 2016, a catastrophically high number for an already frail economy struggling to bounce back. Increasing the minimum wage would cost the American economy tremendously in the short term, and even more in the long run. Hiking the minimum wage will harm every day citizens today and her youth in the future, the very people such a move would be intended to help. Raising the minimum wage would without a doubt hurt the American economy moving forward.

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Raising the Minimum Wage would be a Mistake