President Obama wants to raise the minimum wage to $10.10 an hour from the current $7.25 an hour for entry-level workers. Sounds great, right? Well, that is almost a 40 percent increase. Everyone cheers because that will lift all entry-level employees out of poverty, right?
But wait a minute, I am an employee who started as an entry-level employee three years ago and I have worked hard and gotten rewarded with raises so that I make $10.10 an hour. If the entry-level employee is worth $10.10 an hour, then I must be worth $14.14 an hour. But wait a minute, I’m a shift supervisor that manages both of these people, so I must be worth 40 percent more an hour, too. That attitude would be the same on up the chain of command.
I own the business these people work for and my labor costs just went up 40 percent. I have two choices. I can raise my prices for my company services accordingly, if my customers are willing to pay for these extra costs, and in this competitive environment, they may not be willing to do that. Or, I can terminate the employment of enough employees to offset the additional costs of labor.
Actually, there is a third option — I can go out of business because the government decided what my costs should be and I can’t make a profit.
If all employers are able to choose option one and raise prices, inflation will offset any gains the entry level employee thought they were gaining through government fiat. Will politicians ever learn basic economics? I think not.