6 myths about how minimum wage hurts job growth

Minimum wage or more of this? (Public domain photo)

WASHINGTON, October 24, 2014 — Despite recent Gallup Poll data showing Americans are concerned with the economy, government performance, and jobs, the 2014 Midterm Elections have not been defined by these issues.

One of the few economic solutions put forward is raising the minimum wage.  Although legislative efforts to increase minimum wage are normally associated with Democrats, the only four states asking voters to raise minimum are Republican States.  Ironically, the fiercest opponents of raising the minimum wage tend to come from the far Right of the GOP.

Not only do many of these critics conclude raising minimum wage is a counterproductive solution due to the inflation it helps drive, they also argue the existence of minimum wage creates several “perverse incentives.”  In reality, these supposed perverse incentives are economic issues that cannot be solved by eliminating minimum wage.


  1. Minimum Wage promotes illegal immigration


There are many reasons people illegally immigrate to the United States that have little to do with their economic interests.  Drug trafficking, gang violence, political insecurity, and a lack of justice are just some of the noneconomic factors that force individuals to leave their home countries.

Those who do enter the United States illegally for economic reasons do so, because the U.S. economy offers such individuals more opportunities than their home countries do.  Although minimum wage laws do technically apply to illegal immigrants, employers who willingly violent U.S. immigration laws often do so to exploit cheap labor, according to US Immigration and Customs Enforcement.

That said, impoverishing struggling Americans by eliminating minimum wage in an effort to discourage illegal immigration would only hurt the US economy and the American People.  While illegal immigration did slow due to the Great Recession according to the Pew Research Center, harming the US economy to address illegal immigration is thoroughly irrational.


  1. Encourages students to leave school early and reduces the emphasis on education


People quit school for many reasons.  According to the research of Jonathan Jacob Doll, Zohreh Eslami, and Lynne Walters into the very subject, reasons include bad school and/or home environments, but jobs and family are the major determining factor, especially for students living in poverty do.  When employers cannot, or will not, pay their employees more than minimum wage, parents must devote more of their time and effort to multiple jobs, or even rely on their children for additional income.

It is, however, when students see high school graduates making as much, or slightly more, than high school dropout and young college graduates who expect to make less than what high school graduates of a generation ago made, they are encouraged to give up school.  Consequently, eliminating minimum wage will not solve America’s dropout problem.  What the US economy must do is provide greater rewards for well-educated individuals.


  1. Discourages employers from hiring inexperienced employees


All hiring expenses discourage new hiring.  This includes training, which is always necessary to some degree, even if a potential hire has gone through the proper schooling.  It is also why employers will always try to retain quality workers over new hires.

That said, minimum wage exists, because all employees have living expenses as well as work related expenses, e.g. travel, cloths, etc and they need to earn enough to, at least, provide for those expenses.  Given economists estimate 15 dollars per hour is what the average American worker needs to earn in order to support a minimal acceptable standard of living inside the United State, 15 dollars is the average minimum cost for an hour’s worth of labor.

Because the current minimum wage does not provide a sufficient income to support the minimum acceptable standard of living in America, it is already a way of balancing the risk of hiring inexperienced workers with the needs of employees, which never disappear.  In other words, new hires need to be paid enough, so they can survive until they are able to find permanent, well-paying jobs.

It is important to recognize, when employers can hire workers for little or nothing, they will have an incentive to simply keep firing and rehiring candidates to fill a given segment of their staff, thus these people could get little to nothing for their labor while new jobs would not be created, if minimum wage did not exist.

For those who argue more “well-paying job” would exist if minimum wage did not, the starting wage of any job that will eventually be well-paying should probably be at, or above, minimum wage, so what minimum wage is at only matters if employers want to suppress the wages of their workers.

For those who will not accept this argument, consider the following.  Employers do not need the best workers; they just need workers who can get the job done to a minimum standard acceptable to the consumer.

Looking at the expanding use of temporary workers, employers are already keeping on underpaid temps who are hoping to find permanent jobs that they can use to build a career.  Employers hire and pay based on experience, so the longer temp workers and other subcontractors stay in the temp industry, the harder it will be for them to use their experience to get a job with a future.

For those arguing minimum wage should be eliminated to reward better employees instead of rewarding “near-worthless employees,” this means low-end employees would be further impoverished and fall out of the formal economy.  Given things like periodic unemployment and homelessness are not conditions people easily recover from, especially when they are already dysfunctional to begin with, creating a permanent poverty class is not in the interest of the American People.

Instead of looking down on dysfunctional and outright incompetent employees by saying “a worker will never be worth minimum wage,” as some business owners and managers like to do, the reality is that better employers are worth far more, even if employers do not want, or cannot afford, to pay for better employees.  “You get what you pay for,” goes the saying.

This, of course, demonstrates why eliminating the minimum wage will not solve the unemployment problem.  If employees are not worth minimum wage, eliminating minimum wage will incentivize employers to only hire better workers for less and make them work twice as long.


  1. “Makes the United States less competitive”


A large part of the reason the United States is less competitive due to minimum wage is that the US engages in unfettered Free Trade with countries that do not share equivalent living standards, regulations, taxes, etc.  Given labor laws and other regulations exist to serve other national interests, this argument supports a solution designed to create bigger problems.

The US can never suppress prices enough to compete with every poor country that is seeking development, unless America becomes a poor country and remains a poor country, along with all other countries.  In other words, the vast majority of the Peoples of the world would have to be perpetually poor in order to compete against each other on wages.

Unfortunately, doing this would also mean American consumers could no longer support businesses that depend on customers, thus only businesses that can build global customer bases would remain profitable.

Consequently, eliminating minimum wage will not make the US more competitive, unless all wages completely stagnate and fall as America suppresses the cost of taxes and regulations.  Once again, undermining already struggling Americans and suppressing the US economy is thoroughly irrational.  This, of course, gets at the much larger problem of America’s unsustainable economy.


  1. Raises inflation and cuts the purchasing power of all


Because population growth means greater demand on goods and services, the existence of minimum wage does contribute to the rise of inflation; however, eliminating minimum wage would mean wages would have to be suppressed in order to suppress that increased demand.  In the real world, this would translate into working people who could not afford basic necessities like food or shelter while they could never acheive a modern standard of living.

Meanwhile, increasing minimum wage would likely do more to contribute to inflation in some way or another.  Then again, there are many other factors that contribute to inflation, including pay raises given to well-paid workers and the exploding earnings of the wealthy.  Frankly, the very fact the US economy is growing creates inflation. What increasing minimum wage would do is help low-wage earners survive in an ever more expensive world while blunting the ill-effects of income inequality.

As commodities are priced on ever-increasing global demand and supply, American consumers cannot sufficiently cut their consumption to prevent or reverse inflation.  Instead of blunting inflation, American workers earning below minimum wage would join the ranks of the poor throughout the world who cannot afford the globalized prices of necessities like food.

Consequently, eliminating minimum wage would only undermine the purchasing power of American consumers and harm small businesses based inside the US, which depend on domestic consumer spending.  This includes the service industry where there are plenty of minimum wage workers, little room for increased productivity, and few opportunities for better wages.

Furthermore, this is the very reason income inequality is a major problem.  Although Americans can expect sectors of the economy to grow at uneven rates, different geographical locations to be in different stages of economic development, and different people’s incomes to change at different rates, the reality that there is such a great difference in the grow of the income of the wealthy and the profits of corporations is America’s fundamental economic problem.

Policymakers largely focus on growth, which drives inflation and makes the US even more uncompetitive, but what America needs to do is focus on how wealth is flowing throughout the economy.  Too many businesses cannot afford to pay workers more, even if their wages are now worth less than what they were before inflation, because the US economy is not properly distributing wealth to the communities and businesses suffering from unemployment issues.

The United States has a top-down economy where Americans are seeing pockets of extreme wealth and large pockets of extreme poverty, thus too many businesses are being starved of the customers and revenue they need to support higher wages.


  1. Minimum wage inhibits market forces and, thus, job creation


An increased supply of labor should lower the price of labor when the demand remains the same, but this relationship, just as in any scientific principle, breaks down at a certain down point in the real world.  In this case, it is when employees can no longer survive at a given wage.

Cheapening the cost of labor to increase the demand for labor is not going to lead to a significant enough increase in demand for more workers.  After all, current employees can simply be forced to work more hours at lower wages.

Furthermore, the world is not stagnant.  Assuming the elimination of the minimum wage does lead to increased employment opportunities, over time the increased need for employees to work longer hours, along with the constant pressure to decrease costs due to competition and the fact that minimum wage serves as somewhat of a benchmark for the wages of higher wage workers, the reality is that Americans could only expect to see a decrease in their incomes.  In turn, American businesses would see a decrease in consumer spending, i.e. a decrease in demand for their services and the labor of their employees.

Moreover, eliminating minimum wage is the kind of degenerative and counterproductive policy that is sure to cause more problems than it solves.

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  • Guest

    Those are not myths. Buy a business and start paying $15 an hour. Let me know how it works out for you Matthew Geiger.

    • Matthew J. Geiger

      If you actually read my argument, you would realize I wasn’t advocating increasing the minimum wage to $15 an hour. I was arguing the true value of someone’s work is on average $15 an hour, because that is the minimum living wage in our country on average, which means low-wage earners and low-paying businesses are displacing costs onto government and employees; that is how much income inequality has distorted our economy. If you had actually read my argument, you would have also realized my concern is not necessarily with minimum wage, but rather, income inequality and the ability of American businesses to compete.

      This argument was originally a response to a self-proclaimed conservative” who favored abolishing minimum wage in order to spur job creation; I am only arguing in this article against this notion that eliminating minimum wage would somehow be good for the American economy. That said, there are plenty of industries and businesses, the tech and manufacturing sectors for example, where a $15 an hour starting wage would be laughable while being a real cook once actually paid people a decent amount before the fast food ”revolution.” At the same time, many small businesses, especially those that use unskilled labor cannot afford this amount, because their ability to charge their customers has not increased as the spending power of the dollar has decreased.

      • Guest

        Thank you for your response. There are a lot of issues surrounding the minimum wage issue as you have stated. Getting rid of it may not be a good solution. This is what my perspective is on it. The bigger problem is that many businesses are not the same. They do not hire the same type of employees and do not possess the same capital. All small and large businesses were purchased or created with labor costs in mind. Having city and state governments deciding to change the game drastically could put many businesses and employees out of work. The socialists and democrats are pulling numbers out of a hat. $15 an hour is now becoming the chant from the union backed democratic voices. They have no idea what number will work or not work. Most have never owned a small business and would be surprised at how small the profit margin really is. A small business operating under current minimum wage laws that can not simply increase labor costs at the 60% number is now being vilified in many parts of the country. Unfortunately, it will cost jobs when these businesses fail. But it gets votes for the union backed democrats. It will also make anyone interested in starting a business think twice with the incredible uncertainty. Who knows what the next minimum wage number in a city may be–$30 per hour? When it does get to $30 per hour, who will get these jobs? Not the less skilled and those who need it the most. Sure businesses with higher profit margins will continue to grow, but smaller less profitable businesses (that still employ a lot of people) may go under or never start up. It would be great if everyone in this country could make a lot of money, but unfortunately we can not just pull a number out of a hat and say it will work. While the public would like to see everyone make a good living, they know very little about costs associated with operating a small business. Changing numbers drastically and telling businesses to adapt or go out should not be the solution of city, state, or federal governments. Every business is different.

        • Matthew J. Geiger

          Hi, I appreciate the updated comments. Truthfully, I agree with much of what you’re saying. I’ve actually made far more detailed arguments, including some articles on CDN a few week ago, discussing why minimum wage is not the answer and I include
          several of the argument you just made.

          That said, I don’t squarely blame the unions or the Left, because I think they’re just going for the obvious and easiest option available as all politicians do. In fact, I’ve argued unions are part of a balanced economy, though the corruption of unions, politicians, and businesses is a major part of the problem. Truth be told, there is only so much government can do to help foster business and job creation.

          Regulations, taxes, and tariffs need to be more efficient and responsive to the realities of today. Government needs to stop distorting the economy in degenerative ways; I believe this includes eliminating tax discounts that drive capital from labor-intensive businesses (manufacturing and IT for example) in favor of businesses within the financial services sector, which I wrote about long before Joe Biden did. Although there are plenty of details to argue about, the economy is not balancing the interests of all the American People. This includes business owners, whether rich or poor. The problem is that all players are looking for their out interests instead of cooperating to serve each others interests. We’re seeing degenerative interdependency instead of constructive cooperation.

          Henry Ford introduced the $5 a day wage in order to balance his needs with the needs of employees; in the end, provided Ford far greater benefits in terms of production and work culture, i.e. pride, loyalty, dedication etc, than anyone could have predicted. It was, however, when the unions and the management were on longer focused on balancing those interests the relationship between company guys and union turned toxic to the detriment of the entire business.

  • freehand

    Minimum wage in many states is far too high. A job will pay what it’s worth. If you have an exceptional worker, you pay them more because you realize how rare they are. If you have a near worthless worker, which most minimum wagers are, you pay them and little as possible. I own a business and it’s not like you are an instant millionaire by opening the front door. It’s more a day to day struggle to stay in business and fend off the constant competition. Having to pay your workers more every time you turn around certainly doesn’t help either.