Public Square

The Problem with Raising the Minimum Wage

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Photo courtesy of Daniel Scally

At first glance, it seems as though minimum wage increases are a great way to help low income workers. After all, it means less money for big business and more money for individuals, right?

Harry J. Holzer, a professor of public policy at Georgetown University and chief economist for the Clinton administration, disagrees.

Though he supports moderate minimum wage increases, he objects to large raises in small geographical areas like the ones currently proposed in the greater D.C. area. His reasons?

  1. Businesses will lay off current employees to cut costs.
  2. Most workers getting a raise are not heads of poor households.
  3. As minimum wage reduces employment, inflation will soon decrease the value of the raise anyway.
  4. Minimum wage increases will make it harder to find work.

He concludes that the current economic climate makes minimum wage raises especially inopportune:

The job market’s recovery from the recession has been agonizingly slow, and two of the groups whose wages stand to be increased — the young and least-educated — already have the hardest time finding work. Many are experiencing long-term unemployment from which it is increasingly difficult to escape.

Economist Anne Bradley adds that when businesses have to pay their workers more, it will also drive prices up for those same workers. She observes,

Forcing these stores to pay higher wages means that they lose the ability to compete with other big-box retailers to offer the lowest prices. Competition among producers is what gives us goods and services at higher quality and lower prices. If we eliminate this competitive margin, we are actually harming the very people that we aim to serve.

It is helpful to look at every seemingly good idea to see if it has unintended consequences that will end up hurting those we are trying to serve.

Are there any benefits to raising the minimum wage? Read Holzer’s entire article here, then leave your comments here.

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