Does the Minimum Wage Suppress Wages?

[Stratego]

One of the arguments commonly made by conservatives is that the minimum wage artificially inflates the cost of the lowest skill workers. Their argument is that when the worker's output does not exceed the marginal cost of his wage, the employer won't hire him; thus having a minimum wage is a bad idea because it prices him out of the work force. Had he been able to work for less, he might have been still able to add value to the business and might be employed. However, the current laws made it illegal for him to do so. Many of the conservatives' stance therefore is to abolish the minimum wage and let the free market take its course.

The problem with that argument is that the empirical evidence doesn't support that claim. If we were to believe the laws of supply and demand, we could easily see that the conservatives argument is bullshit because when we raise the minimum wage we do not see a corresponding drop in employment. This means that many employers are still profitable after minimum wage increases. It also means that we're not artificially inflating the wage of the workers.

But what if on the flip side, the minimum wage actually artificially suppresses the wage of the workers? Employers are usually trying to keep the cost of labor down for any given position. This applies for positions ranging from management, to engineers, to administrative workers )or other hourly workers). For jobs like management, there isn't really a guideline, so companies have to benchmark to make sure they're paying market wages. There isn't a price that is widely communicated to what a General Manager for a $5M company makes. As a result, the salary ranges varied greatly, but over the years the median wage had adjusted with inflation.

The same cannot be said about minimum wage workers however. Having a minimum wage basically communicates to companies what their competitors are likely paying for this low skill worker. They don't have to benchmark because they know with a certain degree of certainty that it's what everyone else is paying. What's worse is that as the years go by they're still certain that's what their competitors are paying even though inflation has taken a huge toll on value of that wage.

So everyone, do not believe the conservatives argument that we should abolish the minimum wage because it artificially inflates the value of the lowest skilled workers. We should abolish the minimum wage because it suppresses the wage of the low skill workers.

[Philly]

If you really think this is the case then why not tie the minimum wage to inflation and have it raised annually to keep up? If you get rid of minimum wage altogether in this desperate labor market, people will surely take jobs for less money.

[Stratego]

The issue is where do you establish the starting point? Do we start at $7.25? Do we raise it to $10.10? Or do we use a productivity adjusted rate of $22 from the 1968 minimum?

[Philly]

[Stratego]

[Philly]

[Mogli]

What you guys don't get is when you raise minimum wage, you are eliminating jobs but also, you are hampering the ability of low skill, or no skill, workers, into those entry level jobs.

The other thing you're not getting is that the owners of those companies now raise prices so the raised wage is eaten up in inflation anyway.

So it's a viscous cycle.