How the Minimum Wage Hurts Young Workers

Posted: Aug 07, 2013 12:01 AM

There is an old story, where an economics professor walks into a classroom and begins his lecture on the minimum wage. He will go through wage floors and basic supply and demand of the labor market and will show his students that minimum wage laws result in higher unemployment. He draws a horizontal line above the equilibrium point where supply meets demand and helps students visualize how minimum wage adversely affects the labor market. It appears that with a set minimum wage the supply of labor exceeds the demand resulting in a surplus, which in other words is referred to as unemployment. Soon after, he poses a simple question to the class: "How many of you still support the minimum wage?" and a majority of the hands go up in the room. The professor even hesitates to condemn this intervention himself despite the graph on the board behind him clearly showing its drawbacks.

The conclusion the professor and his students came to in the story above, regardless of what mainstream economic models and evidence may suggest, is not uncommon in today's society. Senator Bernie Sanders from Vermont released a press statement this week saying "We need to raise the minimum wage in this country." He continued his speech by congratulating the workers in St. Louis and Kansas City for picketing McDonald's and Taco Bell in an effort to force them to double their wages from 7.50 an hour to $15.

The biggest problem when talking about issues, like minimum wage, is that the opposition gets painted as heartless and uncaring for the poor. But the minimum wage debate should not become a discussion of who loves poor people more, but rather a simple discussion on economics, and as we all know there are no feelings in economics. It is unlikely that the proponents who push for the abolition of the minimum wage love or hate the poor or disadvantaged any less than the advocates for increases in the minimum wage. In fact, if anything, those pushing for abolition actually care more than their supposedly more altruistic counterparts. Take the following situation for example:

A businessman owns a burger restaurant. He has three employees; employee A, B, and C. Employee A is very hard working and produces 100 burgers an hour. Employee B is an okay worker and produces 75 burgers an hour. Employee C is still learning and is not very good at his job; he only produces 50 burgers an hour. If they are all earning minimum wage, and a new national standard is passed that raises wages, that will immediately put a bigger burden on the business owner. If the owner is struggling to get by, he will then have to terminate one or several of his workers, depending on the size of the wage increase. Examining the evidence above, it is very easy to conclude Employee C is most likely to lose his job. Mandating higher wages to employers may sound like a good idea for the employees but it really isn't so. Workers will be laid off, and those who remain, that is those who supposedly benefit from the wage increase will be expected to make up for the lost output by giving up their breaks and/or cutting benefits. This one distortion will result in more injustice which will inevitably lead to more protest and ultimately more government intervention.

Moreover, Employee C, who lost his job above, is the stereotypical example of who gets hurt the most by minimum wage laws. Individuals who are young or not very talented at their job are immediately passed up for employment as employers are more likely to hire more qualified workers who will be able to make up for the reduced output. Employee C very well could have been a college student, who was still learning how to work in the kitchen. He could have been working to pay his way through college as well as gaining valuable skills he can use for future employment. Employee A above did not need the government to step in and mandate a higher wage for him. The most productive of the three workers will be the most likely to get a raise or be offered a higher paying position by competitors regardless of any new legislation being passed. What raising the minimum wage would do, is eliminate the laborers who need these entry level jobs the most.

Almost every economist will agree, increasing the minimum wage is not only hurtful to the employer, but especially hurtful to lower skilled employees. New studies show over 21.6 million young Americans over the age of 18 are still living with their parents. If we want to fight back against the lack of work ethic amongst our nation's youth, and reinstitute a culture of merit and hard work, abolishing the minimum wage is a very simple fix to some of those problems.

It is not that all young people are lazy or do not want to work, in fact the opposite is true. Personally I have many friends who looked tirelessly for employment this summer and were unsuccessful in their job hunt. Small business owners that specialize in unique fields such as laser printing, paving, and architecture are not able to hire young people at the high wage rates due to the higher cost it will place on their own business. Therefore a young high school student interested in laser printing will sit at home all summer instead of learning valuable skills that will result in long term employment for himself and others in the future.

Advocating for an abolition of the minimum wage or standing up against the increase will not make for a nice sound bite on the nightly newscast, nor will it go over well with a majority of Americans. In a recent poll released by Hart Research Associates shows that 80% of Americans support an increase in the minimum wage. It is time for our elected officials to seriously consider these supposedly "harsh proposals" and have the courage to defend economic reality, over electoral favorability.