Wednesday, 1 July 2009
The Effects of Artificially Raising Wages
« My Problem With Legalizing Gambling | Main | Another Brilliant Government Idea »
I remember when the plea was made to raise the minimum wage. Those on the other side of the political spectrum wailed about how devastating it was for the minimum wage to be so low. They claimed that no one would be able to live off the wage. At the time, I said it was a horrible idea that will limit employment opportunities and cause stores to cut back.
Well we enter year 2 of the plan and the minimum wage is set to increase to $7.25 an hour today. In case anyone noticed, the economy is in a recession which means the problems associated with artificial wage inflation will be exacerbated. Case in point.
It's a shame the legislators who voted for these increases didn't understand the basic economics of their scheme. Now many will suffer the ill effects of their willful ignorance. It really is sad.
Well we enter year 2 of the plan and the minimum wage is set to increase to $7.25 an hour today. In case anyone noticed, the economy is in a recession which means the problems associated with artificial wage inflation will be exacerbated. Case in point.
Here is someone who needs a minimum wage job. It's amazing how quick she realized that the rate increase will further hurt her chances of finding a job. And for those that do have the jobs, they will likely see a decreases in the number of hours they work.Nikki Duvall can't work up a lot of enthusiasm about the prospect of Kentucky's minimum wage increasing to $7.25 an hour Wednesday.
She's among the 10 percent in Jefferson County who want a job, but can't find one, so, "Right now I'd settle for anything," said Duvall, 26, who lacks a high school diploma and recently applied for four different jobs at Louisville fast-food restaurants. She lost her most recent job three months ago at Meijer.
At Long John Silver's fast-food restaurants, the higher wage probably will be offset partly by working employees fewer hours, said Whayne Hougland, executive director of a group that represents the chain's franchisees. . Hougland said there aren't many other options, and raising menu prices would be impossible while competitors are already discounting heavily.It is simple economics. A company can only afford to spend so much money on wages. The amount is fairly fixed. Thus when the costs of wages are artificially inflated the company must do something. They really only have three options. They can increase their sales, increase prices, or cut back on employees. In a down economy, neither the increased sales nor increasing prices are viable. Therefore the only thing to do is cut back on employees. This will take the form of lay-offs or cutting back on available hours for current employees. That means less money for employees. The exact opposite of what the wage increase was supposed to bring. On top of that, the wage increase is chocking off the availability of these low wage jobs. Making it harder for people who desperately need a job to find one.
It's a shame the legislators who voted for these increases didn't understand the basic economics of their scheme. Now many will suffer the ill effects of their willful ignorance. It really is sad.
Posted by at 4:04 PM in Kentucky Politics
