Every few months, a new issue takes prominence on the political scene, and most people quickly embrace a solution before considering any of its consequences. The latest political trend to gain popular support has been increasing minimum wage from its current federal rate of $7.25 an hour to $10.10 per hour. Supporters of a minimum wage increase often frame such a proposal as a cure-all for what ails the U.S. economy.
A CBS News/The New York Times poll from September shows more than 70 percent of people are in favor of raising minimum wage to such high levels. I believe this support stems largely from the fact that most people aren’t educated about the consequences of such a policy.
Raising the minimum wage sounds good in theory. However, the facts simply don’t back up the supposed benefits.
First, let’s just look at how many people actually make minimum wage. According to the Bureau of Labor Statistics, only 4.3 percent of hourly workers make minimum wage or less, and most of them tend to be teenagers and part-time workers. In total, about 1.5 million people across the U.S. make minimum wage. When you include workers who make less than minimum wage — mostly those who earn the tipped wage rate — 3.3 million people earn minimum wage or less.
Now, if you do simple math, a task that seems difficult for most of our politicians, you will find that less than 2 percent of civilians in the labor force earn minimum wage.
So how in the world would raising minimum wage to $10.10 fix our economy and combat poverty? Simply put, it won’t. When you raise minimum wage, those making minimum wage get a pay increase, but nobody else does. What will happen is businesses that have to increase their employees’ wages by 39 percent will have to increase their prices at nearly the same rate. Those who get a raise end up with pretty much the same purchasing power now that things are more expensive, and those of us who don’t get a raise are less able to buy the same amount of goods and services as before. When minimum wage is increased, a fraction of the working population remains unaffected, while 98 percent of people become worse off.
The only effects of minimum wage are economic inefficiencies, job loss and reduced job variance. Minimum wage acts as a price floor, making less skilled workers artificially more expensive, which in turn, lessens their bargaining power and makes it harder to find work.
Let’s not put up with it. Let’s get rid of minimum wage.
That’s not a typo. Let’s end the restraints that come with minimum wage.
No, it would not lead to massive poverty. Even now, those who make minimum wage and are full time do not fall below the federal poverty threshold. No, it would not lead to people making $2 an hour. Who in the world would work for $2 an hour? Nobody. Employees will negotiate with their employers until a fair wage for the amount of skill involved is reached. Wages would start to align more with the natural order of labor demand and supply.
All the horrors people say would come with the removal of federal minimum wage would never come to fruition. What did people do before minimum wage? They got paid a fair wage for the work they performed, and industries competed for workers.
Most people will not take the hard stance of completely eliminating minimum wage, and that’s fine. But before supporting minimum wage, especially such a large increase that is being advocated by politicians like Florida Democratic nominee Gov. Charlie Crist, research the actual facts about the effects of such a policy. Whenever politicians support a policy they claim will have such unambiguously positive effects, there is reason to be skeptical. Remember: If it sounds too good to be true, it probably is.
Nick Eagle is a UF economics and political science senior. His columns appear on Mondays.
[A version of this story ran on page 7 on 10/20/2014]
