Minimum Wage: Companies Are Not Charities

Phil Jensen


employmentObama has successfully rekindled the flames of the minimum wage debate by calling for the federal minimum wage to increase from $7.25 per hour of work to $9.00 per hour of work while indexing the minimum wage to inflation for every year thereafter during his State of the Union address. Obama argues that it will help families have more money to buy things they need.

As Megan Slack stated on the White House’s official blog, “For a working family earning $20,000 – $30,000, the extra $3,500 per year from raising the minimum wage would cover: The family’s spending on groceries for a year; The family’s spending on utilities for a year; The family’s spending on gasoline and clothing for a year; Six months of housing.” ou

That sounds great. But why would Obama argue for $9 and not go for double or nothing at $18?

Rick Kriebel 2016


The increase in the minimum wage will cost some workers their jobs. While many people hold the belief that businesses can handle the extra burden, there will be some that cannot and will not.

As George Mason University professor of economics Dr. Don Boudreaux put it, “My sense is that each cost-raising government regulation passes muster with the general public because the general public simply assumes that the costs of any one such regulation, considered alone, are easily absorbed fully by employers (or by consumers as a large group in the form of slightly higher prices), with no residual negative consequences unleashed to infect the economy.”

A majority of people will never fully see the costs of such a policy directly. They will feel them over time but will not be able to pinpoint it directly to the minimum wage increase. Prices will rise as it is more expensive to employ people. But people will feel pain from this policy in many ways as they lose other benefits that they may have once received. As businesses deal with the increased cost of employing people they will cut other costs to offset the mandated pay raise.

Woodrow Wilcox


Obama understands that you cannot set the minimum wage at any rate you please. There are tradeoffs and Obama knows that going too high will result in higher unemployment. Just as Professor Boudreaux explained, Obama’s view is that a slight increase will not cause a large enough negative impact to harm his or his allies’ political fortunes.

But make no mistake, low-skilled workers will find it harder to find employment.

The market should set the cost of employing a low-skilled workers and not be forced to pay wages on a government’s whim. With the price being set too high, some companies will choose to hire fewer people to avoid overpaying for employees.

Companies are not charities. And they will not hire low-skilled workers and pay them more than they are worth to the company.

But because few people actually see the effects of the minimum wage hike it makes for great politics. Republicans and Democrats have a history of raising the minimum wage as a way to engender support and increase political popularity.

The thing to keep in mind is the people that propose such increases know that they are doing harm to the economy. And they do it knowing that they will get more votes from the good politics of the minimum wage hike without fear of losing votes because of the bad policy.



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