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Something to Think About: The Ramifications of an Increase in Minimum Wage

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Op/Ed By Michael Vaughn

 

michael_vaughn2In my column this week, I would like to weigh in on the discussion regarding raising the minimum wage to $15 per hour for fast food workers. While I would not dissuade anyone from obtaining a decent wage, I think a minimum wage for fast food workers at $15 per hour is too much, and does not reflect what the market may bear, or what the job description demands. What people have to understand is, there will be repercussions following these decisions. And, in this case, there will be economic repercussions. This increase would represent a 71 percent increase in New York state, up from the current $8.75 per hour; and a 106 percent increase in the national realm, relative to the current federal minimum wage of $7.25 per hour.

Basic economics come into play when people are talking about salaries, and how employers may respond. And, any business, which desires to remain in business, will want to make a profit. The largest expense a business has to contend with is its labor costs. There is no way a business can have its costs increase “overnight” by 71 percent, or 106 percent, without the increase having any economic ramifications!

There are only two basic options available to businesses when costs increase. They either have to cut costs elsewhere, in order to offset the increase in mandated costs, or to increase revenue. And, a business will increase revenue either by getting more customers, who pay the same prices for goods and services, or by raising the prices of goods and services.

While the government does not care about raising prices, in the form of taxes; there may be a limit the market can bear for goods and services, which non-government entities may still have to contend with. Therefore, businesses can only raise prices so high.

In addition, when a business cuts costs, they may also reduce the number of workers who have been doing the work. As a result, if costs were to increase by 71 percent, that would mean roughly three people would do the work which had previously been done by five people. And, in the case of a 106 percent increase, that would mean one person would now do the work which had previously been done by two people. In sum, this would mean some of the people who had currently been employed could lose their jobs if businesses were mandated to pay a minimum wage of $15 per hour.

Another ramification, which folks who have been asking to raise the minimum wage have not been stating, is, by lifting the minimum wage; all wages would rise. And, while that may seem good, what that would mean is, if wages across the board rose by 71 percent, costs would also rise, commensurately. That would mean, a loaf of bread, which cost $2 before the wage hike, would then cost $3.44 after the wage increase. Consequently, that would mean the cost of the increase had been passed on to the consumer, and, therefore, the worker would be in the same position as they had been before the wage hike.

As a result, in order for costs to remain low; wages have to be set by the market. This is a foundational element of a capitalistic society. If the government mandates wages the market cannot bear, there may be ramifications which we may feel down the road. And, workers enjoying more “take home” pay, could see themselves paying more for items they need, thus negating any increase.

Politicians know these scenarios, but want to seem as though they care. However, if they cared, they would tell the truth. Folks who are making minimum wage currently have access to many government programs that our tax dollars already pay for, which they can use to help move themselves forward. These programs have already given them the ability to get better jobs, which can enable them to enjoy more income, in a position where the market has set the price. We must always realize basic economics are in play, and upsetting those basics may have long-term ramifications for the economy – ramifications which may do more damage than good. Ultimately, we must not get ourselves wrapped up in the emotions of this issue. We have to face it head on, and be sure to tell the truth about what an increase in the minimum wage would really mean.

If you would like to contact me, please email me at mvaughn.seniorpastor@newwineskin.org.