Raising the minimum wage - why it's a bad idea
By Leila Starr
web posted October 14, 2024
"Heyyy, Tommy. We got some bad news for you."
"What's up boss? I'm sorry I was late again I promiseeee I won't be tomorrow."
"Yes, well, that's part of the problem. Plus, you've said that the past three days and you were still late. But anyway, you see... minimum wage has been ... raised."
"Oh great! Bigger paycheck let's go! Why would that be bad news?"
"Well you see Tommy... the company can't afford to pay all of you twenty dollars an hour. That would destroy us financially. That's just way too expensive. So, we have to... downsize."
"WHAT?? But I need this money to support me and my family!"
"That's the idea... raising minimum wage is supposed to help support people more so they can pay for what they need... but unfortunately, that's at the expense of making some people not be supported at all. That's just the way things work, not my decision. So, I'm afraid we're going to have to let you go. You have two weeks. I would suggest trying to find something that will hire you within that window of time. Have a good day."
One important question to ask as an economist is how to make decisions that impact people in the most helpful way. Making a decision that will hurt the least people and help the most. Even so, there will never be a perfect situation. Some people will always be hurt, and some people will always be helped.
An example of such a question is whether or not to raise the federal minimum wage. Lots of people look at it and say "oooh it's going to help so many people! You're giving people more money, what can go wrong with that?" Unfortunately, the answer is a lot of things.
I conducted my research from three resources. This is one a friend of mine shared, about minimum wage being raised to $20 in CA, and the catastrophic consequences of that. (By the way, he switches subjects around 6 minutes through the video.) I normally would maybe not cite a source like this, but it was the first place I heard about this situation, I knew where to find it, and also just because I think it is funny to listen to the way he talks about it. According to this news article, because of the ridiculously high rates wages have been raised to, it has been a devastation to companies like McDonald's and Chipotle. Prices have to rise to keep up with the high pay, stores have had to close, and as if that were not enough, nearly 10,000 jobs have been cut. Just like in the conversation above, while raising wages might help some people, it ends up with a huge number of people with no wages at all! Plus, it is not good for companies either. They need all the help they can get (as a person who just started a job at a fast food restaurant, I have seen that for myself), and they need to not spend all their money rolling out bankrolls to every single employee across the board. Besides, if you're taking away jobs and raising prices, you're doing the opposite of making everyday necessities easier to access! One person in the article described it as "giving hard workers a stronger voice"... at the expense of 'taking away the voice' of others? Another person said it was "just another law that puts businesses in further jeopardy." Huge raises like this are just not good for lots of people/businesses.
This resource looks into some of the pros and cons of raising minimum wage. It discusses a plan to raise minimum wage to $15 by 2025 (the article was written in 2021, and wages are still the same so apparently that never went through). It says that wages would be raised for at least 17 million people, and bring some 900,000 people out of poverty, but lose 1,400,000 jobs. One could look at that and say, "Well, 17 million compared to just over 1 million isn't that huge of an opportunity cost, so it's not a huge deal." And I would respect an opinion like that, but just urge the other to think of those nearly 1 and a half million people who no longer have any income. It's great that at least 17.9 million people will benefit a lot by this, but before they had less money. Now the people who are fired have no money coming in. There's opportunity cost of numbers of people, and then there's opportunity cost of whether or not money is coming in.
And finally, this resource describes raising minimum wage, discussing it in a way that does seem a bit more reasonable to me. It argues that prices in general have been rising for a long time, but minimum wage hasn't changed in 15 years. That would make sense for raising the minimum wage, to help keep up. One person in this article noted that, seeing as America is the wealthiest country, it is "shameful" that globally, we are #19 in minimum wage. And indeed, there are benefits to raising minimum wage. Lots of people will be able to pay for things more now that they have more money. And perhaps, if it's done right and slowly enough, perhaps not too many lower workers would have to be cut? I am not totally against raising minimum wage, I would just caution against it, and especially against raising it quickly or much higher. I think that it might not be a bad idea to raise minimum wage a little bit, but not so much that there have to be major cutbacks.
Besides, if someone really needs more money, in a lot of cases they can look into moving into a position that would give them a higher wage, or getting a raise, or seeking a better paying job. I think also with individual companies, it can work for them to have a higher minimum wage. When I went into the interview for where I'm working now, she said "I always start people out on $12 an hour- which is very reasonable, considering the minimum wage is $7.25." And it seems to be working for them!
Overall, I do not think that raising the minimum wage is a good idea. Perhaps only raising it a little bit, or slowly, would be able to have fewer consequences. But in general, I would not support raising the minimum wage. 
Leila Starr is an AP Economics students and this is her first contribution to Enter Stage Right. (c) 2024 Leila Starr.
