Every few years (usually in election years) the
country is treated to a debate on the minimum wage. The moral
high ground seems to be with those who want to raise it. After
all, what kind of an ogre would want to keep the poor in poverty?
Before making any rash judgments on the location
of higher ground, however, a little careful analysis might be
in order. Prior to making any sort of rational decision on the
matter, the following questions must be considered:
1) Who fills minimum wage jobs? How many such jobs are there,
and what are the ages and educational backgrounds of those who
2) How long does the average minimum wage earner remain at that
level? Do these workers spend only a short time at minimum wage
before moving on to better paying jobs, or are they stuck at minimum
3) How is an increase in the minimum wage paid for? Do employers
reduce their profit margins by the amount of the increase or do
they find the money elsewhere? If they find it elsewhere, where
do they find it? Do they increase their prices, and if so, are
such increases inflationary? Do employers reduce the size of the
work force and require the remaining employees to pick up the
slack? Do they reduce other employee benefits (such as health
insurance) by an amount equal to the increase?
These questions should be answered before you
decide whether or not increasing the minimum wage is a good idea.
Why aren’t these questions discussed when the issue is debated?
If periodic increases in the minimum wage are desirable, why not
just index it to inflation? That at least would prevent the periodic
payroll shock caused by erratic and unpredictable increases. Indexing,
however, would deprive politicians of speech making material.