Effects of Minimum Wage on US Economy According to Forbes (Essay Sample)

Effects of Minimum wage in the United States
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Minimum wage laws contribute to higher unemployment after the minimum wage increase in 2009; nearly 600,000 teen jobs were lost according to Forbes (Tassi, 2015). Raising the price of labor makes business owners less inclined to hire, increasing unemployment. This decrease in jobs was not caused by the recession, since there was actually net economic growth during this time, but those affected by the minimum wage were suddenly out of a job. It’s the law of demand. The more something costs, the less people will buy of it. It’s not as if businesses can simply just absorb the cut in profits.
Let’s look at an example. Comparing Costco and Walmart, they initially look somewhat similar. Both are well known retail stores. But that is where the similarities end. According to Bloomberg contributor Megan McArdle, Wal-Mart and Costco are two different companies that are in the same field. They are in retail and they do everything practically in the same way, the only difference between the two retail giants is that one pays more than the other. At Costco, the average pay per hours is $21 while at Wal-Mart; the average pay is $ 12 (Megan, 2015). This might make Wal-Mart appear as exploitive to their employees but if one looks closely you can observe that Wal-Mart hires more employees than Costco.This explains the economic principle that the society faces a short run trade-off between inflation and unemployment.
Furthermore, the minimum wage is meant to be a way to get a foot in the door, and having a low wage enables many access points into the market, i.e. it enables the maximum number of feet in the maximum number of doors. Henry Hazlitt, bestselling author of Economics in One Lesson, defines wage as the price of labor, and thus since the economic law of demand states that as prices go up, demand goes down, artificially increasing the price of labor decreases the demand for it (Hazlitt,1979). In other words, it makes employing unskilled laborers seem like less and less of a good investment as minimum wages go up. The reaction to this shows that the employers are thinking at the margin, which serves to prove the economic principle that rational people think on the margin. The employers would rather hire less experienced people who will take less pay but ensure that they maintain their margins. Furthermore, Hazlitt states that, “The first thing that happens, for example, when a law is passed that no one shall be paid less than $106 for a forty hour work week is that no one who is not worth $106 a week to an employer will not be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less.”
Of course there are those who claim that the minimum wage does not contribute to unemployment, citing Great Britain or Australia as an example. However, further examination of Australia shows that a higher minimum wage does lead to unemployment. Currently, the minimum wage in Australia is $17.29 adjusted for purchasing power parity, and their unemployment rate is 5.6%, according to the Mises Institute. Interestingly enough, the minimum wage is only actually $17.29 for those who are above the age of twenty one, and is only above the minimum wage in the United States if one is over 17, and is only barely over the U.S. wage at 18. Additionally, as shown by the Mises Institute, those counted as unemployed are only those actively looking for jobs and able to start working immediately, and this would exclude those searching for a job but unable to start “working immediately (Sabia, 2015).” The Mises Institute states that if those who are “wanting to work,” meaning those who are looking but cannot start immediately, are counted in the statistic, the unemployment rate rises to 14.3%, and if it counts underemployment, meaning that these people wish to work than they currently do, since higher minimum wages can discourage employers from hiring full time, it jumps to almost 20%, much higher than the 5.6% currently touted by those in favor of a higher minimum wage, and additionally, this high minimum wage also decreases their labor force participation by pushing young people into other pursuits, instead of having them looking for jobs, due to the detrimental effects of a minimum wageand this explains the economic principle that the cost of something is what you give up to get it. Youth are observantly not willing to give up their time at a job and would rather dedicate their time to other ventures that they deem fruity.
A very telling chart from the Bureau of Labor Statistics showed that with every increase in the minimum wage, came an increase in teen unemployment rates. 1.1% of full time employees work at the minimum wage, and 2.6% of all employees, full and part time, so of course raising it won’t catastrophically impact our employment rate, but it will be horribly detrimental to the working poor and teenagers, the most common recipients of the minimum wage which brings in the issue of the GDP (gross domestic product). We have to analyze which situation will improve our GDP, having more people employed on lower wages or less people employed on a higher wage. The increase in minimum wage would mean that more money has been injected to the economy, this is owing to the fact that youth are mainly at the bottom of the wage and this would definitely mean that they have more cash. The youth are vibrant and trying to lay a financial foundation and thus increasing the minimum wage would consequently increase the GDP and open up more employment opportunities in the long run.
Minimum Wage laws make poverty worse. Evidence: However, once the facts are examined, one can see that a higher minimum wage does nothing to alleviate poverty. In 2008, the minimum wage was increased from $5.85 to $7.25 over the course of two years. According to taxpolicycenter.org, before the minimum wage increase, the mean income of the bottom 20% of Americans was $11,656, in 2010, once the entirety of the minimum wage increase was enacted, the mean income of the bottom 20% actually dropped to $10,994, and in 2011 was still below what it was before the minimum wage increase. So the attempt to mitigate poverty ended up making poverty worse! According to Forbes, 60% of the poor don’t work, so raising the minimum wage has no affected whatsoever on at least 60% of the officially poor (Tassi, 2015). This consequently affects the CPI (Consumer price index) when we increase the minimum wage, it gets hard to compete at the global level, we produce at a higher price and the majority of the people will buy substitute goods of lesser quality and which are produced in other parts of the world where the minimum wage is much lower. This also elaborates another economic principle thata country’s economy depends on the ability to produce goods and services that are affordable to the general population.
Many people look at Costco and say that Wal-Mart could easily afford to pay at those rates, but an examination reveals that to be false. Costco’s target demographic is much different than Wal-Mart’s. Costco attracts upper-middle class college educated shoppers, while Wal-Mart beckons to lower class citizens. Wal-Mart has to pay its employees less in order to offer lower prices to its clientele. Should the minimum wage be raised, it would not only force Wal-Mart to lay off its employees, but it would force their prices higher, hurting those in poverty. By paying a low wage, Wal-Mart can afford to give a good deal of jobs, and offer lower prices. If the minimum wage is allowed to continue to exist, it will cause further harm to the underprivileged. This further explains the effect of the PPI (producer price index), this tracks the changes in price from the initial stages of production, that is the crude products, to the price of the intermediate products and ultimately to the price of the final product. We need to realize that all the stages are labor intensive and the increased minimum wage will mean that the cost at each stage will have to be felt by the user. If we increase the wages, some of the stages will benefit and others won’t. This means that there will be an imbalance to the prices and such stores like Wal-Mart will be negatively affected.
According to economist Murray Rothbard, author of Man, Economy, and State, and For a New Liberty, “If the minimum wage is, in short raised from $7.25 to $ 9.25 an hour, the consequence is to misemploy, permanently, those who would have been hired at rates in between those two rates.” This would hit the poor much harder than any other group, since it is the poor who work low paying jobs(Rothbard, 2015). This would serve to exacerbate poverty instead of relieving it, by driving the poor from the amorous arms of work, into the arms of big government in the form of welfare handouts, due to the elimination of jobs caused by the minimum wage prohibiting labor contracts for rates under a legislator’s fiat. Moreover, it causes low skilled employees to compete with higher skilled employees, since it makes their wages closer, and when you are paid more money, you are expected to make more value to the employer, and thus the higher skilled employee will get the job, excluding those without skills from the job market and driving them into poverty since they cannot find work. To those who claim that raising the minimum wage is good for unemployment, that it will not increase it, and will raise people out of pover...