Minimum Wage Mishap

Today, we never think twice about using an ATM, but sooner than you might have expected, you may see the use of similar “automatic” kiosks in various industries such as fast food. And while technological replacement of labor is not a new thing or a bad thing, government manipulation of the economy is a bad thing. In this case, government’s economic manipulation will have the most dramatic negative effects on those whose plight some argue a minimum wage will help, including minorities and the poor. Not unlike the plight of the “buggy whip makers ” addressed in Theodore Levit’s 1960 Marketing Myopia, technology may soon replace vast numbers of entry level positions. However, today it will not be in one industry where persons can simply be “retrained”. Today, government is essentially seeking to remove the first rung of employment entirely. How?

The Fair Labor Standards Act was established in 1938 and set the minimum wage at 25 cents an hour. Initially, minimum wage law was established to “push out”  immigrant workers, women, and minorities. The idea was that businesses would be unwilling to pay these persons the higher wages, and this would push these workers out of the labor force and mainstream society completely. While the objective of the initial labor reformers is morally wrong, the outcome they sought to achieve is accurate. Thomas C. Lenard, professor of economics and history at Princeton says, “If they were right, and a $15 per hour minimum by 2022 proves to be too high too fast, the workers who will lose their jobs will disproportionately be people of color, immigrants, the disabled and women — the very people labor reformers vilified as low wage threats a century ago.”

Today, who will be effected by such a big jump in the minimum wage? Unfortunately, workers without alternatives are the individuals who are most often injured by an increase in the minimum wage. Typically, a person who is committed and hardworking at their minimum wage rate will receive small raises over the years. When the minimum wage is raised, it effectively wipes out the raises and recognition these workers have earned. Now, their effective income will go down as the cost are distributed from the employers and passed on to the consumers. This means that the cost of living will rise at a faster rate than the minimum wage, making those people earning minimum wage go deeper into poverty.

Another thing to considers is how small businesses will handle an increase in the minimum wage. Some small businesses will be unable to compete by raising their prices. This will cause these small businesses to go out of business. Now, instead of their employees making “more” money, they will be making nothing.