A popular liberal cause over the years has been to get the minimum wage raised, reasoning that even minimum-wage people ought to be able to make a decent living wage. It’s certainly an appealing and politically potent position.
Business owners will always try to pay as little as possible for their means of production, including their labor, because that makes their products and services more competitive in the market and increases their profit margins. Labor will always try to get as high a pay rate as possible, because that increases their disposable income. Market pressures are what balance these two conflicting goals. Businesses pay what they have to in order attract the workers with the skills they need, and workers shop among businesses for the best pay levels that are available for the skills they can offer.
Now the underlying economic reality is that a laborer has to make more money for his/her employer that he/she costs the employer in wages and benefits. Otherwise the business is a losing proposition and will soon close. For some minimum wage jobs, the employee isn’t making much of a profit for the employer, and if the minimum wage forces the pay rate up, at some point it is simply no longer profitable to employ them. Then the company closes down, or the job is automated or outsourced or otherwise eliminated. Now instead of getting higher pay, the employee is unemployed.
So there is a difficult dilemma here. One would like to assure that workers get a living wage. On the other hand, forcing the minimum wage up will eventually result in workers losing their jobs altogether. The minimum wage dilemma parallels the union dilemma – unions, for perfectly reasonable motives, force wages and benefits up until eventually the resulting total labor costs make their companies uncompetitive and they close altogether. This has happened repeatedly in industries such as steel and automobile manufacturers.
There are no easy answers here. It is a complex issue. Trade barriers sometimes look like the answer (keep the lower cost foreign competition out of the country), but of course then our own export products are priced out of the world market and our own people pay higher prices for their goods and services, and all of that causes additional economic problems and company closings.
Underneath it all is the fundamental reality that workers have to produce more income for their employers than their pay and benefits cost the employer, or the company will eventually be out of business. So in fact the only viable long-term way for workers to increase their wages is for them to become more valuable to their employer by increasing their skills, and hence the income per hour that they earn for their employers. Then and only then are they worth higher pay.
Nevertheless, arguing to raise the minimum wage remains a potent political card, even when in the long run it produces more pain than benefits for workers.
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