Minimum Wage, Maximum Consequences

Good news teenagers, you may be earning a few more dollars on the hour if you’re planning on working for minimum wage at your next summer job. Unfortunately, here’s the bad news: good luck finding one.

According to USA Today, over 30 states are set to consider legislation on minimum wage increases with 22 bills having already been introduced in 15 states. While the chances for a federal increase are slim, Hawaii, Illinois, Maryland, Massachusetts and Minnesota look to be the most likely candidates to raise the wage. Illinois workers may (or may not) be the most fortunate of the bunch, as they have seen their bottom line raised from the federal minimum of $7.25 to $8.25 which now has the potential to be re-raised to $10.10. While those like the President and Wisconsin Democratic gubernatorial candidate Mary Burke claim that this increase will improve the lives of impoverished families and decrease youth employment, states like Illinois prove just the opposite.

As the Illinois State Policy Institute observes, the Land of Lincoln boasts the fourth-highest minimum wage in the nation along with the country’s fourth-worst unemployment rate. Obviously then, there seems to be more to the equation.

History has taught us that money alone does not solve the issue of poverty, i.e. LBJ’s War on Poverty in the mid 60s. The same is true in the case of minimum wage. Think about it for a second. Sure, unskilled and young employees may get some extra cash, but the ripple effect is much larger. Employers must produce this extra cash by cutting expenses from somewhere else, or finding a way to increase revenues without the benefit of netting more profits due to payroll increases. The simplest way to avoid these extra costs is to not hire people. As a result, an increase may only benefit those who are earning minimum wage currently and avoid being let go by their employer, as well as those whose received above the previous minimum wage and receive a proportional raise. The latter poses yet another financial obstacle for employers, cause the ripple effect to spread even farther.

So you may be asking yourself, “Is raising the minimum wage ever ok?” According to his analysis in the Wall Street Journal,  economist Joseph Sabia says there is never a “good” time, but especially not in the midst of economic instability. Of course, wages should roughly adjust to inflation, but the reality is that these increases have real consequences and have the potential to do more harm than good. With small business already strapped for cash in a slowly recovering economy, forcing employers to increase payrolls could be retroactive for both employers as well as job hunters. Watch this video by the Foundation for Economic Freedom for a real-world explanation.

If you would like to find out more about the minimum wage discussion, use the Directory tool on spn.org to find what your state’s think tank has to say about it.