Many people will claim that increasing the minimum wage to $15.00/hour will help to increase the well-being and quality of life for individuals who currently are at today’s minimum wage amount. I find this at best to be only half-true, and only in the short-term, not the long-term.
First of all, keep in mind that only 2-3 percent of the working population actually works a minimum wage job. And out of that number, only a small portion of them are actually working adults who, with their minimum wage income, are trying to take care of themselves and their families. The vast majority of minimum wage earners are, like I’ve said in other articles, young people in high school or college, who are just trying to make some extra money on the side, and learning to have a work ethic.
Before we begin this discussion, there is something that I want you to keep in mind: when the Democratic Socialists of America claim that these business owners, such as the owners of franchise restaurants, make lots of profits, and only give a small fraction of those profits back to their workers, this whole claim is incorrect. Many of these businesses are on tight budgets and have very small profit margins.
What Happens to the Business Owners?
Many of these small business owners, such as the kind that run fast food restaurants and sandwich shops, or own local hotels, are not wealthy, but have middle class incomes. It is the profits from their small business that pays for their living – things like home mortgage, utilities, transportation, clothing, and food. They tend to be frugal as it is and live well within their means. They tend to put any extra money into savings because they know that some other times of the year are slow when it comes to their business.
Making these small business owners have to use some of their profits to pay for more help, or for higher wages, means taking money they probably use to pay their mortgage and utilities and other bills, which causes them to have a more difficult time paying for their regular living expenses. In the end, this could mean that they have to shut down their business because it’s no longer profitable enough for them to simply pay their living expenses. If they did keep their businesses open, they would eventually either have to declare bankruptcy on their business or declare personal bankruptcy.
For example, If you are a business owner, and you have enough money to pay for 400 hours’ worth of work, based on the present minimum wage, doubling that wage means that now, with the same amount of money, you only have enough money to pay for about 200 hours of work. You can only afford to pay for half as many work-hours as you could before because the minimum wage doubled. This means that you either keep all your employees and only give them each half as many hours as you used to, or you lay off half of your workers and give the other half the same hours they used to have. In either case, because each hour worked represents about twice as much money as was spent before, decreasing the amount of hours worked by employees will decrease the total value of goods or services being produced by half (based on the idea that for each hour worked, a working person produces either a good or service that is worth a certain amount of money, and cutting someone’s hours in half will cut the value of that person’s output by half).
The business owner or manager in this case suffers a loss because the output to their customers drops by half. In this case, there are two options – either take money from your profits to pay for more hours and/or workers, which could very well lead to bankruptcy, or raise prices that the customers pay.
If the business owner decides to raise prices on his customers in the hopes that he will raise enough funds to pay for more work hours for his employees, and their new higher hourly wages, this usually ends up backfiring. The higher prices on the customers means that demand for their products or services decreases, meaning that those customers will buy less than they did before, or use that business less often – the higher prices usually cause the business to make less revenue, not more, meaning even less profitability for the business. In this case, it could mean the end to the business as the owner decides to shut up shop and declare bankruptcy.
In other words, doubling the minimum wage creates a no-win situation for the business owner, and eventually leads to their business failing.
What Happens to The Worker?
What happens to the worker who receives minimum wage? As I said before, there are two possible scenarios that could play out.
1. Half the workers are let go, while the other half receive the same hours as before, but with twice the pay. In this case, half the workers benefit in the short-term, while the other half suffers from unemployment. ONLY HALF THE WORKERS BENEFIT. The business owner suffers because he is only turning out half the output as before, leading to one of the two scenarios spoken above, and eventual business failure, which hurts the workers that are still left.
2. No workers are let go, but all receive half the hours they did before. Because their hourly wages doubled, they are all receiving the same pay as before, while doing half the work. In this case, the workers benefit because they now have more time on their hands, which they could use to find another supplemental job, allowing them to hopefully make more income which can improve their lives – this is only in the short-term though. The business owner suffers because he is only turning out half the output as before, leading to one of the two scenarios spoken above, and eventual business failure, which hurts the workers.
In the end, in the long-term, many businesses, especially those with tight budgets and small profit margins, will not make the transition to a higher minimum wage that is more than double what it was before. They end up taking a loss, rather than profiting, have smaller output, and raising prices only lessens demand for their goods, causing them to take up an even bigger loss – all of this culminates in business failure and the loss of jobs for those workers.
Because many businesses have to shut their doors, in my opinion, THERE ARE NO LONG-TERM BENEFITS TO RAISING THE MINIMUM WAGE.
The long-term results of doubling the minimum wage will result in the failure of most, if not all, of the businesses that provide work, and an income, to those at the bottom end of the wage scale.
When these businesses close, it could have a ripple effect, or more accurately, cause a “snowball effect,” and of epic proportions, on the rest of the economy. As other businesses that rely on these small businesses for income become effected by the loss of their customers, they, too, end up closing up shop. Other businesses that rely on those businesses become effected, and hence a snowball effect of economic shrinking and business failure that feeds on itself. The end result could be the same thing that happened to Puerto Rico after the minimum wage law was enacted in the late 1930’s – a super-high unemployment rate unlike anything we’ve seen in American history, save Puerto Rico.
