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An Argument Against Raising The Minimum Wage

Minimum wage increase from a business owner’s perspective.

Many states have seen a rapid minimum wage increase over the past few years. Though raising the minimum wage may sound good in theory, let’s dive into the economic and real world implications.

Increased Automation

Automation can be expensive to implement. However, if the price of labor keeps going up, while technology is getting cheaper, there will come a point where it is a better economical decision to implement automation. Eliminating a significant number of jobs that can be automated.

Take a look a McDonald’s lately. Have you tried one of the ordering kiosks they have at the front? These kiosks have eliminated the need for cashiers (though they still have some on hand to help you if needed), taking away several positions at every location. One of the driving factors for them implementing this was rising labor costs, and the need to stay competitive. Not too long after they did it, we’ve seen several other quick-service restaurants follow suite; such as Costco foodcourt, Burger King, among others.

Automation is one of the problems we will inevitably face in the coming years. Many jobs are at risk as they complete repetitive tasks that a program, robot, or kiosk would be able to do for a fraction of the price. This is not the first time a shift in the type of work has occurred. Looking back to the agricultural and industrial revolution, many jobs were eliminated however at the same time new types of jobs were created. Though not entirely influenced by increasing wages, higher labor costs have a significant impact on the decision making for automation.

Inflationary Pressure

Getting $15/hour with $10/hour minimum wage is good. Getting $15/hour with $15/hour minimum wage doesn’t sound as good as it use to. This goes all the way up. Employers have to raise the salaries of all employees in order to make up for the raise in minimum wage so they can retain good employees. So how do the companies pay for the increased cost? They pass that along to the consumer. Prices of everyday items go up, ultimately bringing your buying power down.

There are many aspects that go into pricing beyond wages (though it does make up a significant portion of the cost in most businesses). If the minimum wage increases at the same rate as inflation, approximately 2-3% annually here in the U.S., this is not a problem. However, once the minimum wage increase exceeds this rate, it does exert inflationary pressure on prices.

You are now bringing in more money, but you are also spending more at the same time. Does this really help then?

Minimum Wage Positions vs. Careers

Minimum wage jobs are intended for entry level positions. Allowing you to get basic level skills and work towards advancement.

The question should not be, “how can I get paid more for doing the same?” It should be, “how can I make myself more valuable to employers (or customers if you have a business)?” An individual is compensated for the value they create.

How can someone provide more value? As an employee, they can gain new skills. These new skills may help in the current position, allow them to get a new position that pays higher because they create more value, or even allow them to get a new job for a different employer.

Final Thoughts

Raising the minimum wage is a necessity. In the US, the average annual inflation rate is right around three percent; wages need to keep up with inflation so that consumer buying power doesn’t go down. So what’s the best solution in this case? In order for a raise in the minimum wage to have the least negative impact on the economy and average basket prices, it needs to be done over a longer span of time. Spread out over many years to allow adjustments to be made incrementally, preventing a shock from doing it all at once.

There can be negative effects of a sudden raise in the minimum wage, and it should be something we are aware of. Seeing the whole picture can help us make better decisions, and ultimately lead to the best outcome.

For an interesting read on the topic, check out a US News interview with an economist from 2016: www.USnews.com

Chandler Hagglund