Raising minimum wage above market rate eliminates jobs, increases prices
Should employers pay their workers better? Can small business owners afford the cost? The debate continues on. And, frankly, both sides have good points.
I often look to what Ron Paul has to say. I paraphrased some of his points regarding federal minimum wage.
Raising minimum wage is certainly an admirable goal, however, to believe that Congress can raise the standard of living for working Americans by simply forcing employers to pay their employees a higher wage is equivalent to claiming that Congress can repeal gravity by passing a law saying humans shall have the ability to fly.
Economic principles dictate that when government imposes a minimum wage rate above the market wage rate, it creates a surplus “wedge” between the supply of labor and the demand for labor, leading to an increase in unemployment. Only the marketplace can determine what is the proper wage.
Wages are different, whether you live in New York City or Birmingham or Lake Jackson, Texas. They are dependent on the size of the city where you’re located, and the wages are what the market will bear.
Minimum wages should be resolved at the local level, and in a free market, the market should determine the right levels of compensation. It’s a negotiation between supply and demand. The market will create full employment at a certain wage. And that goes up and down depending on the participation of labor and expansion or contraction of the economy.
Those who are denied employment opportunities as a result of the minimum wage are often young people at the lower end of the income scale who are seeking entry-level employment. Raising minimum wage to $15 would cost 1.4 million jobs, CBO says.
Perhaps the most significant harm to low-wage earners is caused by the inflationist policies of the Federal Reserve. When the Federal Reserve creates money, those well-connected with the political and financial elites receive the newly created money first, before general price increases have spread through the economy.
Those who are genuinely concerned about increasing the well-being of all Americans should support repeal of all laws, regulations, and taxes that inhibit job creation and economic mobility. Congress should also end the most regressive of all taxes, the inflation tax, by ending the Federal Reserve.