Everyday Americans are struggling to afford the basics due to an ever-worsening affordability crisis. Housing costs have reached all-time highs across the country, groceries are more expensive than they were just a few years ago, and the American Dream seems increasingly out of reach for most people.
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In response, many Democrat politicians have renewed calls to raise the federal minimum wage, arguing that higher pay is necessary to restore the purchasing power of working Americans. Such calls are economically ludicrous, as raising the minimum wage may increase workers’ nominal incomes, but it does little to address the underlying causes of the affordability crisis. In fact, it’s been the previous increases in the minimum wage that have partially contributed to the upward spiral in the costs of living of working people.
By increasing labor costs, encouraging businesses to raise prices or reduce hiring, and accelerating automation, repeated minimum wage hikes risk reinforcing many of the very economic pressures they are intended to alleviate. If policymakers genuinely want to improve living standards, they should focus on expanding productivity, increasing competition, and lowering the cost of living through markets rather than legislating higher wages.
A higher minimum wage .
In the short run, prices are sticky, and the consumer might feel that a higher minimum wage has improved his purchasing power as prices remain the same for the time being. In the long run, though, prices do adapt to the costs of production of businesses, which go up when the mandated minimum wage goes up. In an attempt to keep their profit margins intact, as any rational enterprise would, they naturally pass along the increase in their costs of production in the form of higher prices, thus damaging the consumer.
with the term “inflation,” is responsible for much of the purchasing power loss of the average worker, which translates into more economic and social issues down the line.
In other words, the increase in the minimum wage causes prices to tick in the long run, only for the left to then promise an even higher minimum wage, which feeds into the problem even more. The self-reinforcing cycle, also referred by economists as the “minimum wage trap,” does not improve affordability. It worsens it.
Secondly, higher minimum wages price out workers. California’s $20 fast food minimum wage law is the prime example of it, whereby fast food chains across the Golden State have chosen to replace many entry-level workers with robots or drive-through booths, as it’s cheaper than hiring new workers.
Any wage below a government-mandated minimum is better than an artificially higher minimum wage that many workers never actually earn due to businesses automating jobs or relocating to avoid the higher labor costs.
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Lastly, the increased unemployment due to the higher minimum wages would expand poverty while contributing to rising income and wealth inequality. When fewer people looking to work can find work, they will be dependent on government handouts, thus contributing to the deficit and national debt, or they will depend on their parents for money, and those parents will consume less, as some of their purchasing power is being transferred to their unemployed children.
As consumption drops, companies are forced to produce less as overall demand has fallen. This accounts for less revenue, resulting in thousands of jobs lost due to decreasing profit margins. It also leads to an erosion of the tax base, which in turn takes a toll on government revenue and the public services funded by that revenue.
The proponents of artificially increased minimum wages will point to some unrealistic economic theory, whereby businesses should not seek to safeguard their best economic interests.
Therefore, according to the Robert Reichs of the world, it’s immoral for businesses to raise prices as a result of a higher minimum wage, taking the moral weight off the government’s actions to put it entirely on the shoulders of the private enterprise acting in its rational interest.
If policymakers want Americans to afford more, they should focus on making goods and services cheaper, not just making wages higher. The latter is achieved by making it cheaper for businesses to make products, which would necessitate lowering taxes, reducing unnecessary government regulation and intervention, and removing the government’s foothold from some sectors and industries.
Until that happens, minimum wage increases will continue to hide their true cost: higher prices, inflation, poverty, unemployment, and inequality. The costs certainly outweigh the benefits. The cycle only repeats itself unless it’s disrupted.
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