Thoughts on Minimum Wage

After adjustment, the buying power of a minimum wage income is at a 51-year low! In June CNN.com reported on the Senate’s decision to refuse a proposal that would raise minimum wage over the next 26 months from 5.15 an hour, to 7.15. Ironically, in a separate report published the same day, CNN.com remarked on the 262 fold difference between average CEO pay and what the typical worker makes. (June 21, 2006)

One of the biggest reasons for people being against a raise in minimum wage is the belief that higher pay means fewer jobs.

The mission of all businesses is to make profit. In the most basic terms, a company makes its profit by subtracting costs (how much money is used in the manufacturing of a product/service) from sales. A raise in the minimum will increase the costs of a product. To compensate for this, the price of the product may be increased. However, this lessens the ability of businesses to remain competitive in their respective industries. Not to mention, if all businesses compensate in this manner, all consumer goods will see an increase in price implying that those benefiting by the raise will see no ‘real’ difference in their income. Based on this idea, opponents of raising the wage minimum theorize that any increase will diminish employers’ ability to employ as many workers as they now do, because they will compensate for the loss in profit by decreasing the number of those employed.

The simplicity of this model is its gravest mistake. If profit is to remain the same or higher, then yes costs must be kept at a minimum. However we have neglected the second variable in this equation, sales. The Economic Policy Institute (EPI) has investigated the former theory and found that alternatively in areas where minimum wage has been increased, employers have seen not only a rise in worker productivity, but "lower recruiting and training costs, decreased absenteeism, and increased worker morale" allowing employers to absorb the costs of a wage increase.

Benefiting from an increase would be “an estimated 14.9 million Americans”, and their associated families, health, and happiness.