Minimum Wage Hike Means Maximum Harm for Working Poor

January 24, 2008 11:12PM

By Troy Senik As early as this week, the Senate will consider increasing the federal minimum wage from its current rate of $5.15 an hour to $7.25 an hour. With the House approving its version on January 10, and the tentative endorsement of President Bush, the Senate’s vote on a minimum wage spike appears a mere formality. Nevertheless, if it’s the working poor our senators intend help, they should do everything they can to stop the minimum wage hike in its tracks. An increase in the minimum wage promises to be ruinous for precisely those Americans that it supposedly helps. On its face, the minimum wage seems difficult to oppose. Who wouldn’t be in favor of putting a few more dollars in the pockets of some of America’s hard-working laborers? Unfortunately, the actual effect of a minimum wage increase leaves many of those same workers unemployed and many of those same pockets empty. The economic flaws of a minimum wage hike are vast and destructive. By raising the costs of hiring and retaining employees, an increased minimum wage drives up costs for businesses, leaving two options for employers. First, business owners may choose to pass the increased costs to their customers, driving up the price of everything from baby food to work boots and offsetting any increased spending power for America’s working poor. Second, business owners can decide to reduce the cost of employees by having fewer of them. This means firing the least productive, least skilled workers. You don’t have to be an economist to understand that these are the same workers who are likely earning the minimum wage. If a minimum wage increase will result in higher prices for everyone and unemployment for thousands of poor Americans, who is behind this detrimental effort to drive it up? The answer is America’s labor unions. At first, it may seem odd that unions representing workers who make far more than the minimum wage are leading the battle to make it illegal to employ a consenting adult at a wage lower than $7.25 per hour. Unions, however, commonly index their own wages to minimum wage rates. The pay of a union worker is often multiplied by the minimum wage—with hourly wages set at four, six, even ten times the minimum wage. This means that a dollar-an-hour increase in the minimum wage would cost businesses hundreds more per week for each union employee, leading to an increase in the price of everything from cars and houses to monthly utility bills. Americans can only hope that lawmakers are strong enough to withstand lobbying pressure from unions and have the economic commonsense to reject a public policy proposal as disastrous as a minimum wage hike. If our leaders in Congress want to show compassion for working poor, they should make sure that as many Americans as possible have the opportunity to work for a living. Nothing can provide that opportunity as easily as rejecting an increase in the minimum wage. Troy Senik is a Research Fellow at the Tennessee Center for Policy Research, an independent, nonprofit and nonpartisan research organization committed to achieving a freer, more prosperous Tennessee through the ideas of liberty