Two or Three (.net)

For where two or three are gathered together in my name, there am I in the midst of them. - Jesus

3.08.2005

How to destroy the improving economy

by Aaron Earls [+/-] show/hide

It seems the Democrats in the Senate are growing so tired of an improving economy that they are trying to do something to stop the the growth.

Yesterday, Sen. Edward Kennedy's proposal to increase the minimum wage over $2.00 was thankfully defeated.

This should be very simple to understand, but seemingly intelligent people often fail to grasp this elementary economic equation. If a company has X amount of dollars for labor (which includes minimum wage employees) and the minimum wage is increased, the company will be forced to fire someone in order to stay in business. The company will spend as much as then can on labor to increase productivity, if they are required to pay each worker more, then they will have to fire some of the workers.

Sounds simple right? I have 10 dollars, I plan on buying 5 products for $2 a piece. The price for those products goes up to $2.50 a piece, now I can only buy 4. The same is true for labor. The higher you force the minimum wage, the more people companies are forced to layoff and/or not hire.

The other unintended consequence of a higher minimum wage is the removal of lower educated people from the work force. If I am paying a high school drop-out minimum wage ($5.15 per hour), but the minimum wage is raised $2.10 (to $7.25 - Kennedy's proposal) then I will simply fire the drop-out and hire someone who is more qualified and more worth (labor wise) the additional money spent. It removes (for an extended period of time, until the labor market re-adjusts) low-end workers from the only jobs that they can get. The simple fact is - the higher the minimum wage the more selective a company is when hiring a minimum wage worker.

A higher minimum wage is bad for everyone in the economy. Many of those protesting the current minimum wage and rallying for an increase would be the ones who would feel the worst of the economic fall-out (if they indeed hold minimum wage jobs).

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