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The Un-intended Consequences of Raising the Minimum Wage

By | 2017-04-12T11:50:02+00:00 March 14th, 2017|FEATURE STORIES, Real News|1 Comment

About the Author:

Jireh Gibson
Jireh is an entrepreneur, husband, author, and follower of Christ. He enjoys adding value to others, traveling and jazz music. His background includes business to business marketing, copywriting, and journalism. When he is not conducting research for his next epic contribution, he takes time to work on improving his craft of writing and editing.

The goal to eliminate poverty, create an equal economic system, and provide an environment conducive to healthy competition is more of a myth than anything else. While a noble attempt, the concept has proven to create unintended consequences. Although no one will argue that the current federal minimum is inadequate to sustain a lavish lifestyle, the fact is that was never its original intent.

History of Minimum Wage in the U.S.

After a surprising victory in the 1936 election, President Roosevelt signed the Fair Labor Standards Act (FLSA) into law in 1938. The FLSA brought about sweeping changes and increased protection to the American workers who had previously been exploited. The legislation brought about the 40 hour work week, child labor regulations and a minimum wage of $0.25 an hour. The idea was to create a living wage necessary for the general well-being, health and efficiency without having a huge impact on employment. At the time, the new law was violently opposed by fiscal conservatives and liberals who argued that a mandatory minimum wage would hurt employers. Thousands of workers welcomed the new legislation with open arms. Prior to the new law, workers were subjected to deplorable working conditions, and many worked for pennies a week.

Since it’s inception, the federal minimum wage has ben revised by Congress every few years to respond to increases in the cost of living and to account for inflation. Former President Clinton signed legislation that gives each state the option to set their limits for minimum wage in 1997. The results of that law meant some states’ minimum wage is higher than the federal amount set by Congress.

The True Purpose of Minimum Wage

Sometimes employers find themselves in a catch-22; On one hand, they need to fill a low-skilled position, yet do not have the resources to hire an experienced person. Therefore, the option to pay a minimum wage allows the employer to control costs while achieving the goal of producing cash flow through the products or services rendered. The person who applies for the position has just as much a right to refuse an offer of employment as the employer has over to whom he submits the offer. Other than job responsibilities and expectations, the salary is included in the offer and some cases negotiable, however, once the offer is accepted the employer is not obligated to pay anything more than the agreed hourly wage.

In today’s society, some jobs are accepted as a result of a lack of options. However, from the employee’s perspective, the minimum wage is the starting point, an entry level wage to put one in a position to earn some income. At anytime the employee feels he is not making enough money, he has two options. Ask for a raise or find a position with a higher salary. The minimum wage is not intended to support a family. It is, however, ideal for teenagers breaking into the workforce at a fast food restaurant, at a retail establishment, or anyone who needs a second job with minimal responsibilities.

Disadvantages of Minimum Wage Increase

The guarantee of a minimum wage is a great incentive, however, since covering labor costs is already a struggle for most businesses, there are additional disadvantages to increasing the wage. Although individually there may be some temporary benefit, consequently it could mean the company shuts down. Some of the disadvantages include:

  • Cost-Push Inflation: An increase in the minimum wage may cause companies to pass the higher costs onto their customers as a result.
  • Poorest do not benefit: One drawback to the minimum wage is that it does not help those in the lowest income groups. The reason is the fact those in this group rely on assistance not affected by minimum wages.
  • Unemployment: In the competitive labor markets, a minimum wage increase could cause unemployment because companies will demand less labor. The most affected firms include cleaning businesses and hairdressers, who will likely experience an increase in their wage bill.

The federal corporate tax on companies is about 35 percent, so a company producing $1 million in yearly revenues will pay $350,000 in taxes. The business tax for most states equates to $40,000 in revenue. Therefore, if just one company producing $1 million in annual revenues shuts down as a result of an increase in the minimum wage, not only are the workers adversely impacted, the local community then suffers the loss of $40,000 of potential tax revenue a year. In the video, there are some examples of companies either shutting their doors or raising the costs of their services, many of which far outweighs any individual benefit to a higher minimum wage rate.

Suggested Solutions

Whatever happened to the ‘do what it takes’ work ethic Americans are known for traditionally? This country was built on the ideas and innovation of real entrepreneurs, who were supported by laborers that bought into the vision. People were incentivized to work hard and earn a higher wage, if that is not an option for your current situation, find another position. Most companies pay a range of salaries their employees, based on skill, experience and longevity, an increase in the minimum wage would mean an increase in the overall pay scale for the entire workforce to remain competitive. In addition to, the potential loss of any incentives employees uses to propel themselves forward.

Millions of people have come to America. The primary reason is the ability to take advantage of the many opportunities available. The U.S. is the greatest country in the world regarding freedom of choice, access to resources, and an environment conducive to living at any level of success one chooses. Therefore, don’t stop at and accept the current federal minimum wage of $7.25 an hour, but rather use it as the jumping-off point to reach the required level to sustain your optimal lifestyle. Don’t be average and settle for minimums when there is much more to life than a guaranteed wage. Regardless of the hourly pay, at any time, it is subject to be taken away without warning, i.e. due to downsizing, or layoffs. Earning $15 an hour is rather appealing to anyone barely making ends meet at $7.25. However, if the company shuts down as a result of a higher minimum wage mandate, how appealing does $0.00 an hour become?

By Jireh Gibson

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One Comment

  1. Jerry Littman
    Jerry Littman March 19, 2017 at 4:42 pm - Reply

    I ike this article very much! Even the simplest minded person can understand that minimum wage is not now, nor has it ever been, intended to be a “living wage”!

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