If you listen to the news, you're being led to believe that without a massive increase in the minimum wage, many Americans will soon be living on the street.
Supporters continually argue that minorities and the poor are hardest hit by the low minimum wage. Ironically, it's the increase of the minimum wage that actually hurts these two groups. Here's why.
The U.S. Department of Labor says 1.6 million people make the federal minimum wage of $7.25 an hour. Another 2 million, such as restaurant servers, make a lower hourly wage but also make tips. That means that nationwide, just 3.6 million people make at or below the minimum wage. As a share of the U.S. workforce, just 2.8% of people working make minimum wage. Also, almost half of those are below age 25 and many of those are students working while in school, or teenagers working part-time.
In addition, workers in every single sector of the labor market already earn well above the minimum wage. In fact, in November 2013, the government reported that the average hourly labor wage across all industries was $20.31, which is nearly three times the federal minimum wage.
In some cases, fast-food workers are being used as pawns by Unions. Workers in hundreds of U.S. cities recently staged a day of rallies to demand higher wages. In Kansas City, Missouri, one striking employee of a Popeye's restaurant said, in an interview, that her minimum wage job does not give her enough money to even celebrate Christmas.
The organizers of these nationwide protests are advocating a raise in the minimum wage to $15-an-hour for fast-food workers. Workers in the St. Louis area have been marching around restaurants shouting, "St. Louis can't survive on $7.35."
The effort is backed by the Service Employees International Union (SEIU), which is also demanding that restaurants allow workers to unionize without the threat of retaliation. These unions are busy working to get minimum wage initiatives on state ballots in hopes of attracting more low-income, minority, and union voters to the polls and increase their membership.
Many economists point to research that shows minimum wage increases kill jobs and encourage companies to pass along the added cost in the form of higher prices. For instance, a study by the American Action Forum estimates that New York state's minimum-wage increase in 2006 reduced employment by more than 20 percent for low-skilled workers.
California's recent minimum-wage increase to $10 per hour is predicted to result in a loss of almost 200,000 new jobs, the study claims.
It's about to get worse. Under Obamacare, businesses that do not provide qualifying health coverage must pay a penalty for each full-time worker they employ. Some lawmakers would further increase hiring costs by raising the federal minimum wage to $10.10 per hour.
This would raise the cost of hiring a full-time worker to $12.71 per hour. Employers cannot pay workers more than they produce so they would respond by eliminating jobs and by cutting workers to part-time status, which would let them avoid the Obamacare penalty.
Consider the problems American Samoa had with a minimum wage increase. The U.S. territory used to be able to set its own minimum wage. In 2007, Congress decided to align its rate with the U.S. rate in 50-cent annual increments. By May 2009, this raised wages for two-thirds of those working in the islands' tuna canneries, and, predictably, the tuna canning industry started losing money. Canneries began shutting down, laying off workers, and cutting hours. Samoan unemployment went from 5% to 36%. American Samoa Gov. Togiola Tulafona, a Democrat, begged Congress to stop raising the minimum wage.
Minimum-wage jobs are entry-level jobs that give unskilled workers the experience they need to become more productive and earn higher pay.
Most minimum-wage workers earn raises without the government interfering. Representatives of Walmart issued a statement that said: "About 75 percent of our store management teams started as hourly associates, and they now earn between $50,000 and $170,000 a year."
Raising the minimum wage is often touted as an easy answer for alleviating poverty. Higher wages however, mean employers seek higher skilled workers. That puts those with disproportionately less education and experience at a significant disadvantage. If a person doesn't want minimum wage pay then they have to offer more than minimum wage skills. Many people act like businesses everywhere could just shower money on everyone if they weren't so selfish. Was this the case with Blockbuster, Circuit City, or Borders?
Companies can vanish overnight. If you don't like minimum-wage jobs now, just wait and see how you feel about them after they are gone.