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Higher minimum wage's negative effects

BY KATIE KUNTZ | JUNE 13, 2012 6:30 AM

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There's a common misconception that the welfare system is bad because it takes my hard-earned money and gives it to people who didn't work for it. In reality, though, there are few groups that don't work and still receive my hard-earned money: abandoned, abused, or orphaned children, the disabled, the sick, the elderly, and those in prison.

Then we have this large number of people who actually do work but are either not paid enough and so receive government welfare checks, because they are paid so little at their jobs that they can hardly afford food, shelter, medicine, and clothing to support themselves and their families.

If we want to cut welfare, then employees have got to be paid higher wages. It is disgusting to think that we have so many on welfare only because they are either underemployed, unable to work enough hours to make enough money — or are underpaid — working hard hours but are little more than wage slaves.

Enter the federal government, in all its infinite wisdom, realizing that it must devise some plan that plays all the political pools properly and produces more tax revenue without raising taxes. Perfect solution: raise the minimum wage. With a plan like this, who can complain?

I can complain.

Although a minimum wage is absolutely crucial to having any sort of working standards and allowing people a shot at supporting themselves, the drastic measures proposed by House liberals — to increase the minimum wage from $7.25 to $10 per hour — would only further our recession and cause significant inflation.

By raising the minimum wage so drastically, Congress will cause an adverse supply shock by forcing one factor of production, labor, to increase its cost by 27.5 percent. This is something business people would really not be able to handle. This is what economists call "stagflation," or the unfortunate situation when both inflation and recession occur simultaneously because of an adverse supply shock.

This one-size-fits-all bill is the wrong way to do it. We need a minimum wage so that employers don't hire employees for little better than slaves wages and to protect from the problems caused by your neighbor Fat Fred, who will work for nothing more than five Twinkies an hour when you actually need money to pay bills.

Furthermore, the minimum wage should be re-evaluated on a regular basis to compare the cost of living with income made by working full-time for minimum wage, and it ought to be adjusted for inflation.

The current U.S. inflation rate is 2.3 percent, according to the Bureau of Labor Statistics.
The flaw in the logic of our Congressional representatives is that they are comparing the purchasing power of today's minimum with the minimum wage of 1968 and adjusting for 40 years' worth of inflation and cramming it all into one bill. The consequences of this sort of rash act would likely be disastrous.

This plan would worsen the recession because, as you might imagine, if employers realized that they were going to have to increase the pay of their employees by 27.5, percent they would likely fire some employees. Those people would be out of jobs, taking in less money, spending less money, and now the recession is worse.

The increase to the minimum wage is not the solution. There is not a quick fix to our economy. We do need more jobs, both in the public and private sectors, and we need to check that trade is fair and if regulated, regulated in such a way that does not always put money into the campaign contributors of great politicians but spreads the success for a great nation.


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