Who Pays for Minimum Wage Mandates

Chart: Minimum Wage
Minimum Wage Hike Graphic


Who pays for Minimum Wage Mandates?

The answer to that is: (Wait for it! Wait for it…) The tax payers of course! Ultimately all of society does, but it hurts the lower economic segment of our society the most. As Ronald Reagan quipped many years ago, the ten most frightening words are, “Hi, I’m from the government and I’m here to help!” Most all “solutions” implemented by our government for dealing with problems in our society turn out to be band aids to some other mess it has already created. So it is with minimum wage mandates.

In the national election last month 4 states: Arizona, Colorado, Maine and Washington passed increasing minimum wage mandates from 2017 to 2020. Surely this must be good for workers, right? Of course – assuming they still have jobs by 2020.

Let’s look at some of the consequences of government mandating wage levels.

This whole discussion of increasing the minimum wage sets an expectation in the minds of minimum wage earners that they “deserve” $15 per hour without having done anything to improve their worth to their employer. This expectation was amply demonstrated earlier this year when these employees demonstrated in the streets demanding $15/hr.

Mandates force small business owners to cut back on the number of employees they currently employ because their budgets don’t cover the increased wage requirements mandated by government in part because the productivity of minimum wage earners cannot keep pace with the increasing costs of mandated minimum wages and the increasing business costs.

In an article entitled “Unprecedented Wage Hikes Would Hurt Jobs and the Economy” written by James Sherk and John Ligon of The Heritage Foundation (http://www.heritage.org/research/reports/2013/12/unprecedented-minimum-wage-hike-would-hurt-jobs-and-the-economy) in response to president Obama’s 2013 proposal to raise the federal minimum wage to $10.10/hour by 2016 show that $10.10 is substantially higher than the average increase since 1950. The writers then show that such an increase would result in the loss of 217,000 jobs per year and a decrease in GDP of $42 billion by 2017.

Sherk and Ligon point out that the majority of the lost jobs would come at the lowest rung of skills and productivity of entry level employees. These jobs are for the most part the training ground for gaining and improving skills which are required to attain jobs that are above the minimum wage.

Here’s the scary part – the four states that increased minimum wages last month have mandated $15/hr, not the $10.10 proposed by president Obama to begin in 2016. These minimum wage mandates are wonderful for acquiring votes but the purchase price is astronomical. Let’s try free market principles to wages and see what happens.

Article by Art Nicolet