The Minimum Wage Myth

by Josh Guckert

In 1935, President Franklin Delano Roosevelt proposed a brand new concept to the United States: the federal minimum wage. Originally deemed unconstitutional by the Supreme Court, the Fair Labor Standards Act in 1938 reinstituted Roosevelt’s $0.25 an hour mandate, a little over $4 in today’s money. Since then, every U.S. President except Ronald Reagan has increased this hourly requirement. It now stands at $7.25, nearly doubling the standard FDR set when he came up with the idea. Moreover, President Obama has said in the past that he wishes to increase the minimum wage to $9.50!

As great as it may sound, we must ask ourselves: does this government mandate actually help the lower-income workers it sets out to help? Deeper inspection tells us no. In fact, between 80% and 90% of economists say that increasing the minimum wage actually increases unemployment among youth and low-skilled workers. The reason is simple: when a business has only a select amount of capital to spend on lower level workers, it must use that capital wisely. When big government says it wishes to help poor Americans by increasing the minimum wage, it is simply out of touch with reality. Every time the wage is raised, the companies must make a decision on who to keep and who is expendable.

Those who raise the minimum wage seem to think that a company where 100 unskilled workers make $5 each will be able to easily turn into a company where 100 workers making $10 each. However, the truth is much grimmer. That same company would actually consist of 50 workers, with the other half being laid off to make up for the wage increases that the lucky ones received. So instead of raising every worker’s salary from $5 to $10, legislators actually decrease quite a few salaries from $5 to $0.  Having no experience in other fields, these newly unemployed will also have a hard time finding a new job, since employers will be hesitant to pay such a high price for on-the-job training. There is no need to fret, however, because many of the same legislators who passed the new minimum wage will be eager to place these unemployables on another favorite program of theirs: welfare.