3 Things You Need To Know About Raising The Minimum Wage | Gradient

3 Things You Need to Know About Raising the Minimum Wage

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In New York and California, the Fight for Fifteen has landed its final right hook on minimum wage policy as it stood. Over the next few years, both states will slowly raise the legal wage requirement to $15 an hour to ensure a better-living standard for all workers. Raising the minimum wage to $15 on a federal level is something a lot of politicians have been paying lip service to. Bernie Sanders has famously made it one of his core campaign issues, and Clinton has supported a slightly less drastic federal minimum wage hike of her own. However, the GOP pretty much always shoots it down as a bad idea, citing the undue pressure a higher minimum wage would place on small business owners.

So where does that leave the rest of us?

1. Most minimum wage earners aren’t destitute.

When it comes to talking about raising the minimum wage, the agreed starting point is generally this: any decisions made must prioritize the well-being of low-income workers without placing an undue financial hardship on the middle and upper class. After all, it’s likely any changes to the minimum degree of compensation would most directly affect those living on the minimum amount of income. Most people working at minimum wage jobs aren’t teenagers still paying for Xbox games with their parents’ money. The majority are still under 25, with only 3% of workers making minimum wage once they are over 25. Basically, there are still poor families who aren’t making ends meet because minimum wage can’t keep a family going, but they’re not the primary demographic.

When politicians and activists call for a “living wage,” it’ll predominantly affect Americans who are in their twenties and just getting started with their career paths. But even if the demographic of minimum wage earners isn’t mostly made up of the Dickensian needy, the impoverished could still benefit from a raise. Unfortunately, boosting the minimum wage seems to have done little to help in the past and helped fewer people than one could’ve hoped, but those raises were not as large as the ones being discussed today.

2. Nobody can predict what raising the minimum wage will actually do.

In Economics in One Lesson, Henry Hazlitt explains why raising the minimum wage is such a complex issue.  Hazlitt writes that “the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

Imagine Jeff Goldblum’s character in Jurassic Park. Raising the minimum wage is a drop of water on your hand going in different directions each time, it’s a butterfly flapping its wings and a storm starting somewhere else because that’s how economic decisions of any variety work. Economies are hard to understand and even harder to control. And experimenting on any ecosystem is bound to have some unintended side effects (another good lesson from the Jurassic Park movies).

On the plus side, an increase in wages could lead to fewer people on welfare. As of now, impoverished families may feel constricted in the entitlement system because working minimum wage jobs will actually bring them less money than being the recipients of benefits. This directly helps the needy as it acts as incentivization to get them back into the workforce at a more livable rate while also helping to dodge the injustices and difficulties of qualifying for welfare in the first place (Matt Taibbi’s The Divide is an excellent read on this). More wage money means fewer people on entitlements. That means lower taxes need to be levied to create a welfare pool.

3. Most employers are not Ebenezer Scrooge

But Hazlitt’s one lesson urges more caution than optimism with this example, as much as any other. An enforced higher wage rate means going against the basic economic laws of supply and demand. As of now, wages for any given job are as low as the employers can pay while still being high enough for workers to accept. If employers have a set wage budget, and the government says they’re going to have to pay wages above that set budget, they have to account for it somehow.

It’s easy when you think in terms of the greedy CEO having to take a cut in pay to make sure his or her workers can live, but it becomes more complex when you realize how rarely this will be the case. There are a lot of small business owners in America who are neither greedy nor angry at the poor, and will find any significant hike in the minimum wage to pose a very real threat to their livelihood. Necessity will force them to either cut labor force and/or raise prices, meaning the living wage becomes less accessible to those who need it, and prices for goods go up most painfully for those who are struggling to afford them. The benevolent CEOs and bosses are already paying their workers as much as they could anyway and could end up facing the same moral dilemma about how to pool enough cash to keep as many workers and keep prices as low as possible. A butterfly flaps its wings; hurricane starts somewhere else.

Ultimately, raising the minimum wage seems like a cheap way to combat poverty. It will help in some areas. It’ll hurt in others. Most economic solutions have positive and negative outcomes, but when it comes to helping the neediest find a better life, it’s important to fight against those negatives as hard as we can. Whether that fight is best won by a $15 minimum wage will be observable in New York and California before it’s observable in the nation at large.

Whatever your opinion is it’ll probably end up being a more successful experiment than Jurassic Park.