The state of California recently passed legislation that will raise the minimum wage in that state to $15/hour by 2023. Similarly, Missouri residents voted to raise the minimum wage to $12/hour by 2023 (minimum-wage.org). Missouri and California are very different states in terms of policy, living conditions, and size. This might explain the difference in their minimum wage increases by 2023, Missouri’s being $3/hour less than California. But, before determining why a difference minimum wage makes sense or not, is raising the minimum wage a good thing? Is it an ethical thing? Why do we even have a minimum wage in the first place?
The minimum wage has been a heated topic of debate in the United states since it was first introduced by Franklin Roosevelt in 1938. 1938 may not seem like that long ago, not even 100 year. This is because the united states operated as a very free economy in its youth. Far fewer government regulations were in place to determine what businesses should do. There is no evidence that the lack of regulations caused things such as child labor or poor working conditions of the late 19th century and early 20th century, however, regulations started to become more prevalent as unionized workers sought to shine light on the poor working conditions. In addition, the financial crisis of the great depression hit the common American worker very hard and the government thought it was its job to save the economy. The way in which the government did this was by putting in place social safety nets that were intended to provide a cushion, of sorts, for unemployed persons or those under the poverty line. One such regulation was the minimum wage.
The minimum wage was first set at $0.25/hour (roughly 4.15/hr accounting for inflation according to bebusinessed.com). This was not intended to be a living wage for an educated adult in the workforce, rather it was a starting wage for young workers who were just entering the work force. That seems to be a misconception that is prominent in today’s society. The minimum wage is not supposed to be a goal as an adult’s final income level, hence the name, minimum. People should strive to work hard and earn more than the minimum wage; it is at best a starting point. I think that the minimum wage should not exist because it is the business’s right to determine what it pays each employee based on their worth to the company. Thus, it is just as much the right of the individual to seek out employment and positions where they feel they are compensated fairly. The only situation where I see a minimum wage practically working would be if there were some sort of age limit where the minimum wage applied to only young workers who had little experience.
In today’s standards, $0.25/hour is extremely low, so how does the minimum wage keep up with inflation? The federal minimum wage has been increased 21 times since it was created. Each time it has moved in a fairly linear fashion, with a few exceptions where it was increased at a rate higher than the inflation rate. Are these increases warranted? I think you can make an argument that it would make sense to keep the minimum wage the same in value as the currency inflates. But increasing it higher than the rate of inflation makes little sense to me.
From an economic standpoint it does not make sense to have a minimum wage at all. It should be up to the market to determine the value of work between the employee and the employer at an agreed upon wage. If there is no exploitation at work, it will be a fair wage and both parties will benefit. From an ethical standpoint, it still does not make sense to have a minimum wage. There is no reason to coerce a business into paying more than they think the work is valued. There are also unintended consequences for a minimum wage that actually make it unethical. According to Jack Kelly, a senior contributor to Forbes magazine, “Raising the minimum wage has a number of serious and negative unintended consequences. Employers, especially small family and midsize businesses, will be disproportionately hurt by the extra costs incurred.” It may sound good, but given some critical thinking and some economic knowledge, it is hard to argue for an increase in minimum wage. When employers are required to pay more for work that is not as valuable for them it creates a surplus in workers. What this means is that there is a limited amount of work that needs to be done at a given price and the government has moved the floor above the equilibrium of work to workers. When this happens it actually hurts the people that the minimum wage was supposed to help because more people are left unemployed.
Think about a local grocery store that is working hard to make a profit. If they think the value of a cashier is $7.5/hour are able to pay for 4 workers at that rate to keep their margins. Now say we increase the minimum wage to $15 an hours, horray! Well this sounds great for the cashiers; they will all make double what they used to. But for the local store it is not so great after all. They already have slim margins and cannot afford to pay the employees twice as much. The money has to come from somewhere. So they have two options; they can keep all of their employees, but they will have to make up the money lost by increasing the prices of their products, or they have to fire 2 of their employees. Neither scenario sounds good!
In conclusion, I do not think that raising the minimum wage in California was a good thing, economically or ethically. It contributes to rising prices and homelessness in their state. I am sad to see that Missouri voted to follow in the footsteps of California.
Sources Cited
Bose, Apurva. “History of Minimum Wage.” History of The US Minimum Wage – From The Very First Minimum Wage. Last modified December 4, 2018. Accessed September 23, 2020. https://bebusinessed.com/history/history-of-minimum-wage/.
Kelly, Jack. “The Unintended Consequences Of Raising Minimum Wage To $15.” Forbes. Forbes Magazine, July 10, 2019. Last modified July 10, 2019. Accessed September 23, 2020. https://www.forbes.com/sites/jackkelly/2019/07/10/the-unintended-consequences-of-the-15-minimum-wage/.
“Missouri Minimum Wage for 2019, 2020.” Accessed September 23, 2020. https://www.minimum-wage.org/missouri.