Should we raise the minimum wage? For many Americans, the answer is yes. They assert that the current minimum wage is much too low to make ends meet in a troubled, inflation-ridden economy. How can one live on $1,256 (the monthly salary of a minimum wage worker, according to “Paycheck Calculator,” published by Best GED Classes) when rent alone is over $1000? Therefore, leftists affirm, we must raise the minimum wage to give lower-income citizens more income and means to survive because in a capitalist economy, money is everything.
Unfortunately, the truth is much more complicated than that. In fact, minimum wage hikes can, in fact, lead to the unemployment of the very people the raise should help. But, as many states which have succumbed to the “fight for 15” have learned by experience, the disastrous effects of a minimum wage increment extend far beyond joblessness of the entry-level worker: the economy and country as a whole suffer. All in all, raising the minimum wage will do more harm than good by resulting in price increases, harm to small businesses and serious damage to the economy.
Raising the minimum wage will, first and foremost, trigger price increases. Money is scarce, especially for small businesses, which make up the overwhelming majority of American jobs and nearly 50% of U.S. economic activity, according to the U.S. Small Business Association (quoted in “How Small Businesses Drive The American Economy,” by Martin Rowinski, published March 5, 2022 in Forbes).
Why? The answer lies in economics. Profit margins are very thin, if a local store makes $10 in one sale, that does not mean they have $10 to keep. As a Welly box article titled “How Much Do New Businesses Spend?” notes, most of that money is used for expenses, “marketing, innovation…production and team management.” Small businesses owners, who have families and financial needs of their own, scrape out a living from the remainder (the profit margins).
A startling statistic from a Brex article titled “What is a good profit margin? Industry averages and how to improve yours” illustrates how serious the situation is; the average profit margin is roughly 7.7%. Those who say that businesses unable to afford a $15 minimum wage should consider this. A government-imposed minimum wage increase will increase the amount of pressure on these businesses and their already tight finances. Small enterprises will, thus, be forced to counter the cost increase by raising prices. Increased prices will make goods and services less affordable for lower income families-the very people the minimum wage increment should help. They will be no better off with their higher wage, since the increase in income is canceled out by ever-higher prices.
In addition to provoking price increases, a higher minimum wage will also harm American businesses. As stated previously, the dominant stereotype of entrepreneurs as greedy capitalists who seek to maximize their profits whatever means possible does not apply to the average American business. The vast majority of American businesses employ less than 100 people, according to Kelly Main’s article titled “Small Business Statistics of 2023.” Small business owners use the money gained from their enterprise (or what’s left of it) to feed their families.
A minimum wage hike will put more pressure on these businesses, causing one of two outcomes. First, they will find strategic ways to keep up with ever more stringent government edicts. One of those ways is the aforementioned raising of prices. Another one is firing employees with the least skills and experience – the very ones receiving the minimum wage. When money gets tight, entrepreneurs must find ways to cut costs or they will soon be out of business. Less-skilled employers are the first to go, since they are easy to replace.
In other words, the very people a higher minimum wage increase should help may lose their jobs if it is enacted. Even worse, reemployment will prove difficult, since they have little skills and experience to bring to the table and the cost of keeping such entry-level workers is too expensive for local businesses. Imagine a minimum wage worker receives a raise, only to find out that his tenure will soon expire, by order of his superiors. A few months later, we find him desperately looking for a new job, only that no one will hire him because he is an entry-level worker. Surely that is not the fate we want for poor Americans.
The second negative outcome of a higher minimum wage on local enterprises is nothing short of devastating. When faced with the challenge of meeting stringent government wage regulations, businesses will respond to a higher minimum wage by cutting costs to reduce pressure on profits. If all goes well, things will eventually ease up and their company will be back on its feet. Some businesses do survive and continue offering their products to consumers, albeit at a higher price. Many, however, do not make it. The profit margin is simply too small, to pay all the workers and the CEO. Those less fortunate entrepreneurs will see their business, the sole source of their income, and in many cases their passion and dream, close. Everyone employed in that business, from administrative managers to entry-level workers, will be jobless. Some would say that businesses unable to afford a $15 minimum wage deserve to close, and when they do, other more-deserving businesses will take their place.
I would humbly advise they consider the following: due to the nature of their enterprise, local mom-and-pops are the most likely to shut down because of a higher minimum wage. They will be replaced by massive corporations, the greedy tycoons everyone loves to hate. Is that what we want for America’s business sector, for corrupt, massive corporations to dominate American business? Is not local entrepreneurship what we want to encourage? A higher minimum wage will do the opposite.
Finally, a higher minimum wage will seriously damage the economy. The combination of the aforementioned factors – price increases and business shutdowns – will negatively affect the economy. Moreover, higher prices will exacerbate the damaging effects of inflation, resulting in extremely high prices and reducing the purchasing power of the American consumer.
We saw last year what inflation can do to gas prices, groceries and the like. Many Americans likely found themselves dipping deep in their accounts to pay for mundane expenses in a way they had not done before. Imagine the effect if stringent minimum wage regulation forced businesses to raise the already increased prices. The price of eggs, which before might have been, say, $2.20, would shoot up to $3.50. The average American would find their finances strained and overburdened. How much more those living below the poverty line? These individuals likely already have overburdened finances. The “double-increase” of prices would surely lead them to economic ruin.
Furthermore, businesses may combat the negative effects of the minimum wage regulation by not hiring entry-level workers at all. That is what happened in Seattle, Washington when they raised the minimum wage. As Erin Shannon of the Washington Policy Center points out, entry-level workers were essentially edged out of the workforce because micro-businesses could not afford them (qtd in “Minimum Wage Hurts Beginners,” John Stossel, 1:37-1:43). Without the job, entry-level workers are robbed of the opportunity to develop their skills and prove themselves. The opportunity for training, learning new skills and getting promoted to new positions, is also eliminated. In some places, the entry-level worker position may be drastically reduced, leading to massive job loss, according to an Investopedia article titled “What Are the Pros and Cons of Raising the Minimum Wage?” Common sense tells us that jobs are vital to economic growth. Thus, massive job loss resulting from a higher minimum wage could contribute to economic regression, including a lower GDP.
We nearly went into a recession last year. Do we really want to risk that again? A federal minimum wage of $15 an hour would do just that. Combine that with an already fragile economy (inflation and the worker shortage have done us no good), and you have a recipe for disaster.
In conclusion, while raising the minimum wage may seem advantageous, the cons outweigh the pros. A higher minimum wage puts more pressure on American business, most of which are not multi-millionaire CEOs, but your average mom-and-pop shop downtown or across the street. Small business owners will desperately look for ways to counter the damaging effects of the minimum wage regulation. Many will raise prices, which exacerbates inflation, cut worker hours, or lay off inexperienced workers (i.e, the ones earning the minimum wage).
Those are the lucky ones. Many more will go out of business completely, putting thousands out of a job. Guess who replaces them? Massive corporations who often use questionable means to generate profit, from monopolies to crony capitalism. Economic growth will stop, and a recession may even start-all for succumbing to the fight for $15. There are other ways for minimum wage workers to earn more money, the simplest being gaining skills, training and experience which paves the way for their promotion. We need not artificially bring that about. It will not do much good.