Saturday, July 1, 2017

The Minimum Wage Conundrum

To Society,

Apparently Seattle is starting to feel the effects of the minimum wage increase and it is not optimistic. While some companies beforehand actually paid well more than the minimum wage, forcing all companies to do so have many problems, resulting in no way everyone could win and the one to lose the most was the minimum wage worker.

When you increase the wages of a large workforce, where does the extra money come from? There are three options.
1) from the company 
2) from the consumer
3) from the worker

When trying to run a business, you need to try to make a profit. With the minimum wage increase, a business model I had became no longer viable because not enough money would come in to support both the costs of operation and the workforce.  In today's economy, startups have enough trouble as it is. Increasing the cost when profit is not yet guaranteed makes it even harder to start a business. As a result, less jobs are created. 

Now I will admit that if a company is performing very well, then the employees should reap some of the benefits, but by forcing to raise the minimum wage for even struggling companies, there is more to be lost than gained.

As for the consumer paying for the increase in wages, the common method is to raise prices. This does not help anyone, especially in the long run. One, when prices go up, consumers will turn to other products or companies. I did this especially when it came to Subway long before I stopped going there altogether. I would often go regularly and order the $5 footlong because that's what Subway's marketing convinced me the sandwich was worth. So when the prices went up, I no longer went there. Similarly, when I visited Japan and found the 6-inch subs to be more than $5, I refused to order anything. Companies know they can lose customers by raising prices and in a competitive industry, raising prices is not an easy option.

Also consider that if the prices for basic items go up in order to handle the increased wages, that means the increased wages don't mean so much anymore and those who previously made a decent wage no longer do. No one wins here.

Lastly, the money can come from the workforce and we've seen this happen before not too long ago. Employees get laid off, benefits are removed, or hours are cut. The result is that everyone suffers due to overworking, having to pay for benefits, or not working enough to make any money. Unfortunately, when it comes to running a business, this is the easiest option to pull off because it can have the least negative impact.

Are there other problems caused by the increase in minimum wages? Yes. The increase in prices means businesses have less customers, reducing the need for workers or closing the business altogether. Less jobs for unskilled workers makes it difficult to gain work experience. More competition for jobs makes it harder to save money for college. The increase in wages mean that even if you made more, then you have to pay more in taxes. Also, with higher prices, then we get inflation, meaning everyone is effectively making less money.

So what can we do? Not raise the minimum wages so dramatically but instead look at the real economic problems. Since raising the minimum wage actually creates more problems without solving any, we need to shift our attention. However, I do not have time today to address them for you, but I do intend to write again on the subject. Until then,

With love,
N. D. Moharo

No comments:

Post a Comment