By Brett Linley
Across the country, workers are rising up to demand a US$15-per-hour minimum wage.
Economic struggles have left many Americans, particularly low-paid workers, wondering how they’ll afford the most basic necessities. In response, many are calling for a higher minimum wage. As a result, New York Governor Andrew Cuomo recently signed legislation to gradually raise the state minimum wage to $15-per-hour.
While it is necessary to have compassion for the most unfortunate among us, we must also make sure that our good intentions do not price them out of the job market.
The minimum wage unequivocally reduces employment opportunities, especially for the least skilled workers in the economy. Although certain institutions would like to contest this fact, it is not a radical conservative notion. Rather, it is widely accepted in economics.
Businesses, being rational entities that want to maximize their profits, will only hire up to the point where the value of the last worker’s productivity is equal to his wage. If the twentieth worker produces $7.25 of value per hour, that worker would be hired at the current minimum wage.
It’s not hard to see how a $15-per-hour wage affects not only the last worker that would be hired, but perhaps even the prior five. If a worker’s productivity falls below the value of his wage, firms like McDonalds and WalMart will either lay off that worker or raise the prices of their respective goods and services. Either of these measures harms the most vulnerable among us.
Someone could respond by saying that such price increases to cover the cost of a wage hike would be relatively small, allowing workers to have a higher wage without really inconveniencing consumers. But this ignores the nature of the goods being consumed by many of these businesses, as well as their target markets.
Many businesses employing workers at the minimum wage are selling goods and services with relatively elastic demands, meaning that consumers are more likely to stop consuming them when their prices go up. At a certain point, McDonalds cheeseburgers are less appealing than other foods. This point can be reached even with a relatively small price increase.
When you factor in the number of customers who lack the means to purchase more expensive options, it becomes easy to see how this would lead to falling business profits and further layoffs.
Like it or not, businesses do not operate as charities, but as institutions made to sustain their owners. Part of what makes low-wage workers relatively expendable is the rise of mechanization.
Think of just about any basic service-sector job, and there’s probably some degree of this involved. Automated self-checkouts at grocery stores and automated ordering systems at fast food restaurants are just some of the ways in which businesses have been able to maintain a competitive edge.
In an increasingly service-based economy, there is arguably a premium on face-to-face interaction. Most people prefer to interact with another person rather than a machine when possible. Businesses keep this in mind, and likely prefer human employees themselves. Problems arise, however, when this is no longer a feasible option.
If a business can replace the productivity of a significant number of expensive workers with mechanization, it’s the sensible thing to do. This is the case especially if a one-time large investment can bring lower operation costs over time. If businesses cannot sustain profits, not only do they not hire additional people, but the business itself may close down.
This is not a tirade over workers receiving fair compensation. In a fair and competitive market, wages rise with increases in productivity. It should be the goal of anyone who calls himself a capitalist to see workers achieve an adequate standard of living.
It is with this in mind that those who support the plight of the poor can stand up against a rising minimum wage. Pricing the uneducated and the less well off out of the job market will not help them achieve higher standards of living. If employers are increasingly burdened with employment regulations, they’ll hire less people and pay them less to mitigate potential losses.
If today’s workers want to achieve the standards of living they desire, they should confront the state institutions that have made those living standards economically unviable. They shouldn’t take on the market, which does its best to give them a job in the first place.
Brett Linley is a Young Voices Advocate and student at Hofstra University. Follow @BrettLinley.