Let’s ask Joe the business owner and Sam the employee whether the federal minimum wage is too low.
Joe: Every time they raise the minimum wage I have to choose between raising my prices or letting employees go in order to keep the business running. I would like to pay my employees more but I just can’t afford it. Minimum wage should stay where it is.
Sam: Raising the minimum wage from $5.15 an Hour to $5.85 is ridiculous! That’s only an extra $28 for a 40 hour work week. What can you buy for $28, not much. Yes the minimum wage is too low but only raising it $.70 is not going to do much to help. We’re going to need a bigger raise than that to make a difference.
Of course Joe and Sam are fictional characters of my own creation but the issue is quite real. I can see both sides, both people are just trying to make a living the best way they know how. Never having had employees myself I tend to side with Sam. I can’t imagine trying to live on $5.85 a year an hour, it seems ridiculous to me that the federal minimum wage is so low. However, if I was a struggling business owner and my labor costs went up overnight I might feel differently.
What do you think? If the federal minimum wage is too low now, what would be an appropriate rate instead?
Written on July 23, 2007
If there are people willing and lined up to get a job that pays $5.15 an hour, why should the government dictate that it should be higher? I agree that there should be some bare minimums set to avoid the abusive labor practices, but it should be dictated by supply and demand.
If company A can keep fully staffed by offering a starting wage $6, that’s fine. If a few states over the same company finds it easy to keep staffed at $5 an hour, so be it. The cost of living and supply and demand across the country is far too diverse to demand a nationwide minimum. At most, states should set the minimum if one is to be required.
But people wonder why there is so much outsourcing these days, well thanks to things such as arbitrary minimum wage hikes you can expect that trend to continue. Employers will find people willing to work for less elsewhere.
Think of yourself personally as an employer, what happens when your cable bill raises by a 10% and your level of service is unchanged? More than likely you’re a bit pissed off and you begin to look for alternate providers or find ways to cut costs. A business is no different, when someone mandates they have a higher expense they either need to pass it along to consumers or find cheaper help.
Comment by Jeremy — July 23, 2007 @ 8:19 am
That does sound pretty low
When minimum wage rose in this area and we didn’t want to get rid of people, the only choice was to raise the prices of all products. The customers didn’t like it, but most of them got used to it.
Comment by Josh — July 23, 2007 @ 10:48 am
The idea of having the minimum wage set at the state level could be a very interesting idea.
The problem I see with pure capitalism in this arena is the child from the a low income with no parents to help, no education, and no network of people don’t want to work for $5, but they don’t often have much choice. McDonald’s is the only thing the know and the only thing they see people doing.
Comment by The Happy Rock — July 23, 2007 @ 8:04 pm
I think the real problem is that if you took health care and child care out of the equation by offering a national system, the minimum wage could then be set at $0. If anyone could get quality health care and child care, you could then turn loose the capitalist market forces and let people choose whether or not to work for a given wage, but not have to feel that children were being doomed to abject poverty or that people were dying of pneumonia on the streets.
Otherwise, $5 per hour barely beats begging on the streets in this part of America (NYC) and that’s probably even better since it’s a cash job (no taxes). Sad.
Comment by Brip Blap — July 23, 2007 @ 8:14 pm
Jeremy, I did wonder what effect the rate increase would have on # of jobs outsourced.
Good catch Josh, I fixed it.
Happy Rock, I agree it seems many solutions work fine for the majority of the population but let a minority slip through the cracks.
Comment by Ben — July 23, 2007 @ 10:38 pm
Federal minimum wage seems to affect mainly one industry - fast food - and regions of the US with extremely low costs of living. In most urban/coastal areas, where one can easily beg on the streets for more than $6 hour, minimum wages are higher.
This probably has little to no effect on outsourcing. At this point, probably %95 of jobs that could be outsourced have been. The rest are “in-sourced” (cheap migrant labor). That leaves fast food, which can neither outsource, nor insource as they are not ag.
Other than that, maybe Walmarts and other restaurants. Of course the Walton heirs would rather pass on the costs to consumers than part with one trillionth of their collective wealth.
Comment by Mr Happy — July 25, 2007 @ 4:25 pm
I think minimum wage is too low. I’m sorry for the business owners, but it’s hard to live on minimum wage. I think the business owners should look to get a little productivity in other places.
Comment by Lazy Man and Money — July 28, 2007 @ 12:57 am
[…] – The minimum wage went up this week. Mighty Bargain Hunter wonders what’s the point of minimum wage, Consumerism Commentary talks about future minimum wage increases, and Cash Money Life ponders whether the increase is good or bad. […]
Pingback by Money Smart Life » Personal Finance Review - Getting Old Edition — July 29, 2007 @ 12:44 pm
I think the Federal minimum wage is too low. As a stringent free marketer, I believe that the vast majority of prices should be left for the market to determine.
However, I feel that respectfully living on $5.15 an hour is not possible. Yes, some businesses will need to shut down or fire employees if the minimum wage increases. That is a very unfortunate side effect. However, as a society we should consider the notion that maybe business that cannot pay their employees a living wage and still survive might not be worth saving.
I do not say this lightly. It will be hard to explain to workers who lose their jobs due to an increase in the minimum wage that they are losing their livelihoods for the good of society. However, if you take this argument to the extreme, you can argue that there should not be a minimum wage at all. Yet, even with a much higher minimum wage in states like CA, business are doing very well, thank you very much.
This is a very good post. Thanks for raising the issue.
Comment by shadox — July 29, 2007 @ 9:24 pm
“Think of yourself personally as an employer, what happens when your cable bill raises by a 10% and your level of service is unchanged? More than likely you’re a bit pissed off and you begin to look for alternate providers or find ways to cut costs. A business is no different, when someone mandates they have a higher expense they either need to pass it along to consumers or find cheaper help.”
Well, the thing is you aren’t supposed to be at min. wage for the duration of your career. Most businesses I have ever worked for, some of which were salary, some of which started at min. wage, offered periodic reviews and increases. Sometimes in as little as 90 days.
What I’m trying to say is, if a person stays working for Sam for a length of time, Sam IS getting more for his money in the form of increased efficiency, seniority, mentoring of newer employees etc. Not to mention he is avoiding the costs associated with hiring and training a new employee.
Even Walmart gives its employees raises now and then, so I would say Sam is probably just a cheap asshole, and Joe is an idiot for putting up with it and staying.
Comment by JM — July 30, 2007 @ 8:41 am
Here’s an interesting point no one has brought up….You raise minimum wage so that people can buy more, live better, afford life. That’s great. Now business owners can’t afford their employees, so they raise prices. Now that nice raise all the workers just got buys about the same as what they used to make. How does this help?
Comment by Slinky — July 30, 2007 @ 11:58 am
[…] Ben wonders if minimum wage is too low. Personally I think the market should dictate wages, the government has enough to worry about. This may be a departure from my earlier thinking though and I reserve the right to change my opinion at any time. […]
Pingback by » Weekly Roundup - Ghent Bar Tour Weekend on Blueprint for Financial Prosperity — July 30, 2007 @ 8:08 pm
Businesses will pass every cost increase on to the consumer, especially if it is universal like a minimum wage. Therefore all you do is create inflation and the employee will not be further ahead except that maybe now they have to pay more in taxes.
The only busineses that won’t pass on a minimum wage increase will be those that aren’t affected like automated businesses or outsourced. In that case, the companies that are affected will be out-competed and you will have simply put a company out of business along with all their employees.
The normal progression is that people take a minimum wage job, get experience, then move on to a better job. People should not be spending a career flipping burgers.
Comment by Customers Revenge — August 1, 2007 @ 8:17 am
[…] unknown wrote an interesting post today on Is the Minimum Wage Too Low?Here’s a quick excerpt […]
Pingback by Hoystriking.Com » Is the Minimum Wage Too Low? — October 28, 2007 @ 6:25 pm
Ok
I live in Australia. Not an economist but cop this. Minimum wage is SIXTEEN DOLLARS PER HOUR.
Our gross GDP per CAPITA is 31,000 vs us 41,000 APPROC
ur average wage is approc $10,000 higher than ours.
YET
we DESTROY you on the quality of life indicators, we have nearly as much wage inequality. But people get paid a whole lot more.
Our economy does not collapse, it adapts, small stores that can’t afford to hire employees use mom and pop operations. They don’t hire many slaves.
We have many stores and much growth b.c ppl can afford to buy things. That what you don’t consider, profits taken from a company and given to employees lead to direct consumption and growth LOCALY.
I have no doubt, business can afford to pay their workers more they just chose not to an it is hurting your economy.
Deflation… lol.. DEFLATION when the world is booming the US is dying. WAKE UP.
Comment by George — October 30, 2007 @ 11:05 am
I’ll say that again. We have a lower average wage and gross gdp per capita by $10,000 each but our minimum wage is SIXTEEN DOLLARS PER HOUR.
Our unemployment is very low and we destroy the US on the quality of life.
You governemt and your business owners are pissing in your pocket. They can afford to pay you a LOT more.
Comment by George — October 30, 2007 @ 11:07 am