How raising the minimum wage hurts those it’s supposed to help

President Obama announced during his State of the Union address that he wants to raise the minimum wage from $7.25 to $10.10 per hour, an increase of 28 percent.

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Aside from it being a cheap ploy by Democrats to retain the votes of low-income Americans, this is yet another big government scheme that gives no thought to economic consequences.

Or reality.

If the President is successful in raising the minimum wage, it would be most detrimental to low-wage earners, whose unemployment numbers would increase.

The popularity of raising the minimum wage is predicated on the assumption that workers will simply be given pay raises, and that will be that. Economic policies, however, do not occur in a vacuum. There are unintended consequences that inevitably correlate with any change this drastic.

When the minimum wage is raised to a higher level, such as $10.10, this essentially says that anyone not skilled enough to make that much per hour is unemployable. Those below the poverty line will be hurt the most by this policy, because if the minimum wage is increased, the first jobs that will be lost will be those falling below the $10.10 threshold.

Minimum wage increases killing jobs is nothing new.

The companies with the most low-skill, low-wage workers are companies such as Wal-Mart, Target, McDonalds, Burger King, and Wendy’s. Coincidentally, these are also companies which draw a significant amount of business from low wage workers due to their low prices.

If these companies wish to retain all or most of their employees, they will likely be required to raise their prices which hurts—you guessed it—their low-income customers.

So even if a low-wage worker manages to hold onto his job, his cost of living will have gone up.

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There is no question that a raise in the minimum wage would place a huge encumbrance on small businesses. While some have made the argument that Wal-Mart and other large corporations could afford to raise their wages, there has yet to be a credible argument for this policy that includes small businesses and their tight budgets.

Small businesses generally cannot meet the expense of a 28 percent increase in payroll, or afford to lose employees, or raise their prices—some or all of which would have to happen if the minimum wage was to rise.

The president likes to believe he is a champion of small business. If he is for a minimum wage increase, he most certainly is not.

An individual’s wage should only be the business of two parties; the employer and the employee. The employee wants the highest wage he can get, while the employer would obviously like to pay as little as possible. In a free society, this is when the market would take over. An employer and employee would attempt to find common ground, and if successful, would be able to agree on a wage which would accurately reflect the value of that employee’s labor. If the two sides cannot find their way to an agreement, then both will go their separate ways.

Unfortunately, this is not exactly how the system works today. Currently the government acts as an authoritative third party over the contract negotiations between employer and employee, and artificially sets wages at an arbitrary amount, which helps neither side.

It forces employers to either overpay for labor, or to simply ignore potential job candidates with a labor value that sits below the minimum wage. Needless to say, this inhibits low skilled workers from easily finding work.

A significant amount of low-skilled workers, which include high school dropouts, ex-cons, homeless individuals, or teenage parents simply do not have the skills that warrant being paid $10.10 per hour. President Obama’s solution is to artificially inflate wages and the cost of doing business, thereby making it more difficult for low-wage earners to keep their jobs and virtually guaranteeing that those low-skilled workers who are already unemployed will never find work.

Federal and local governments have no business dictating what is a fair wage or an unfair wage.

These decisions are best left up to the market, which is the most impartial judge one could ask for.

What do you think?

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