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Minimum Wage To Destroy the Economy and Millions of Jobs, Should Be Dropped

By: Steve Johnson

7/10/2009 - 108 Comments

The federal minimum wage is set to increase from $6.55 to $7.25 on July 24th.

This change will raise hourly wages for millions of workers in 29 states that have minimum wages lower than $7.25 an hour. This amounts to an increase of 10.7%.

Minimum wage is always destructive to the economy it’s just harder to recognize when the economy is growing.  But it’s going to be devastating to the economy in a deep recession.

This increase leaves businesses who employ millions of low skilled workers with two options: 1) Increase prices or 2) layoff more workers - inflation or more unemployed. 

The very concept of minimum wage is support by the public as a way to force businesses not to take advantage of them and protect their jobs.  But the results are just the opposite.  Minimum wage cause employers to replace workers with computers and machines and labor from other countries. 

Here Are Some Other Effects of Minimum Wage:

Reduces Options for ‘on the Job Training’

Minimum wages reduce the options of on the job training and forces workers to attend collage for additional skill training.  Many skills can be learned on the job. For example, when I was 14 I started working at an auto body shop.  My job was to sweep the floor, clear the paint guns and cut up the cardboard boxes.  I started at $1 per hour. 

Over the several years that I worked there, I learned the skill of auto body and how the entire business operated.  If the owner was forced to pay me more money he probably would never have hired me and I would have never learned that skill. 

My only option for learning that skill would have been attending a community college and paying several thousand dollars for the training.  Millions of workers who are now looking for new skills could be gaining those skills on the job rather than having to borrow money (with government loans) to attend a college – if minimum wage was dropped.

Increases Crime

When I started my first job at 14 years of age, I had a lot of energy and time on my hands.  That job saved me from getting into trouble by giving me something to do.  Without work and bills coming due, many will turn to crime as the recession deepens.  Minimum wages increase crime.

Reduces Customer Service

Low skilled workers increase customer service.  Wouldn’t it be nice to get a live person on the phone when you call a business or service instead of an answering machine or a computer?  How about someone to pump gas in your car?  How about help finding something in a retail store or another waiter to fill your water?

Minimum wages reduce customer service as employers are forces to replace low skilled tasks with computers and automation machines – or just less service.  For the same money, you get less service and fewer options for service.

Reduces Productivity, which Reduces Wealth

There is only one way to increase wages and that is to increase productivity. Minimum wages gives foreign manufactures a competitive advantage and allows them to sell products at lower price then our manufactures.  This increases outsourcing an increases foreign debt as our exports drop below our imports, causing a negative trade deficit.

Each month that we have a negative trade deficit is another month that wealth is being transferred out of our nation.  Minimum wage in bleeding our nation of wealth.

Increases Government Dependent and Assistance

The millions of workers that cannot find jobs because employers cannot hire at minimum wages without losing money, are forced onto government assistance.  This further compacts the problem as each day these workers sit idle, is a day they are not productive and their skills become less valuable.

If minimum wage was removed, millions of workers would still be employed – at lower incomes, but at least they would have work to keep making their mortgage payments for buying food until they find other higher paying jobs.

Minimum wage is just another form of government central planning of the economy.  No one in government is smart enough to adjust wages in the economy; just an Alan Greenspan wasn’t smart enough to manage the economy from the Federal Reserve.

The free market is the only system that is capable to set labor wages and if the government was willing to trust the market, there would be no minimum wage.   Controlling wages is again a power grab and is used by politicians to gain votes for labor unions that want to protect there high wages – even at the expense of millions of lower paying jobs.

Forcing Higher Wages on the Global Economy is Impossible

Minimum wage in an attempt to force employers to pay higher wages to their employees, but in a global economy that is impossible.  Wages are competitive on a global scale.  Forcing wages higher causes unemployment or higher prices.  Both end up causing lower wages. 

Unemployment leads to an increase in employment in foreign nations, which drives up foreign currencies and decreases the value of the dollar. Therefore, when you get a job at the forced higher wage, the dollars you earn are worth less value – in effect resulting in a lower wages. 

Higher prices lead to a decrease in exports, driving a higher trade deficit and a lower demand for the dollar, having the same effect – resulting in a lower wages.

It is a fantasy to believe that federal minimum wages can increase the wages of workers.

Let Wages Drop To $3

If the politicians realized what they are doing to the economy, they would completely drop the federal minimum wage. This would put millions of people back to work, off the streets and off government assistance.  It would increase productivity, manufacturing output, drop prices, increase exports and reduce the trade deficit. 

Eventually, when the government gives up and turned back to the free market for help in the deepening recession (and the sooner the better), low skilled wages may drop to $3 per hour.  That is exactly what we need to give the nation a chance to compete with foreign labor and strengthen a weakening currency. 

The sooner the government stops its failed attempts are controlling the economy with burdensome policies like minimum wage the sooner the economy can begin to recover. Hopefully, that doesn't take another ten years or we will end up with a decade long recession.

The additional economic growth would perhaps save the dollar from its coming collapse. 

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