• Minimum Wage Hike Bad Idea

“If there were ever a bad time to raise the cost of labor, it’s now. What is Congress thinking? Or, are they?” That what William Dunkelberg, Economic Strategist for Boenning & Scattergood and Chief Economist for the National Federation of Independent Business thinks about the July 24th minimum wage increase to $7.25.

One problem, he says, “is that about 40% of all minimum wage workers come from above median income families. They are not “in poverty”. The earned income tax credit is designed to help people like Mr. Stoval who has more family responsibilities than he can support. The minimum wage is not an effective “anti-poverty” program.”

The affect of the wage increase, according to Dunkelberg, is that “every new dollar a minimum wage worker receives must come from the pockets of business owners and consumers paying higher prices. Minimum wage workers may get more to spend, but other consumers lose an identical amount, there can be no “stimulus” here.”

He explains, “If GM has too many “unemployed cars” on its lots, it reduces prices to get them “employed” providing transportation. But with 14 million unemployed workers “on the lot”, Congress raises the price of labor. This defies logic and common sense. The Law of Demand applies to everything, even labor. The higher the price, the lower the quantity taken.”

The problem is that, “Companies cannot afford to pay workers more than they add to the value of the firm. The higher the minimum wage, the great this hurdle. A higher minimum makes it more difficult for young, unskilled and handicapped workers to get jobs that justify the higher wage now required. This PERMANENTLY reduces job opportunities for these workers, denying them the opportunity to enter the labor force and get “on the job” training, making them more productive workers. Instead, they return to the street corners and the underground economy.”

So, here’s the bottom line according to Dunkelberg: (1) there is no “stimulus” from the increased minimum wage. Every dollar a worker received comes out of the pockets of consumers and business owners; (2) a 10.7% increase in the cost of less skilled labor will cost jobs (David Neumark estimates 300,000 for those under 25 years of age); (3) a higher minimum permanently reduces job opportunities for unskilled and handicapped workers, denying them the opportunity to become productive members of the labor force; (4) the higher minimum requires business owners to pay more for the same labor (with no increase in output), raising unit labor costs which reduces profits in a weak economy, puts pressure on prices in a growing economy; (5) a higher minimum is a poorly focused poverty program, missing its target almost 50% of the time. Less skilled workers losing their jobs are seriously harmed and opportunities for them to get a job in the future are reduced.