At the recent State of the State address, Governor Murphy boasted that New Jersey’s minimum wage had reached $15 an hour and that he “hoped it would go even higher.” Economically speaking, this is madness. Over the last few years, Americans have been bludgeoned with inflation unlike few other times in our history. The cost of goods, services, housing, interest rates, tuition, taxes have all skyrocketed. One of the contributing factors to rising prices is the huge increase in the cost of labor driven in large part by the near doubling of the minimum wage in just a few years.
Just about every American begins their work life with a job that pays minimum wage. This beautiful process allows young people with little to no skill sets or experience to gain entry into the workforce, acquire knowledge and skills, learn the responsibilities of being an employee and earn a few dollars along the way. It was never meant to be a permanent destination that would afford an adult lifestyle or support a family of four. It was a stepping stone along the way to a more demanding job or career that builds open the foundation of experience gained at the minimum wage level.
Fast forward to 2024 and politicians have latched onto this as if it were another government program to use as a pandering tool at election time. Little thought, however, appears to have been given to the economic reality of such a sharp increase in the cost of labor to every entity that utilizes paid employees.
Increasing the minimum wage not only impacts entry level workers, it also increases the costs of those in higher level positions whose salaries must be adjusted upward to accommodate pay differentials and salary ranges for more skilled individuals. All this translates to one thing – higher costs for the consumers and taxpayers.
Many businesses, such as supermarkets, work on a very narrow margin of around one percent. As a result, they cannot afford to absorb such enormous increases in labor costs and are left with three options; eliminate jobs, close, or raise prices.
The third option is what consumers usually end up seeing firsthand. Ironically, studies have shown that this actually hurts minimum wage earners the most. The Harvard Review found that increases in the minimum wage actually decreased compensation through a “combination of reduced hours, [in]eligibility for benefits, and schedule [in]consistency.” This is in addition to instances where the position is outright eliminated. Automation, technology, artificial intelligence can all be used to replace jobs whose cost exceeds its market value.
Increasing the cost of labor not only affects businesses, but it also impacts property taxes as well. Local, county, state governments and schools all employ part-time and seasonal workers who are paid at or near minimum wage. When those costs jump, it becomes pick your poison – cut services or raise taxes.
Sadly, it appears that many of those politicians who continually beat the drum to increase the minimum wage are completely clueless as to basic economic principles of supply and demand, consumer pricing and market forces. Recently, California Congresswoman Barbara Lee called for a $50 an hour minimum wage with zero concern for what such a ludicrous proposal would do to the economy if ever enacted.
Clearly, everyone wants entry level workers to progress and earn as much as their talents, ambitions and work ethic will allow.
The magnificence of the American economy is that there are boundless opportunities for upward mobility and advancement. History is replete with stories of successful CEOs, doctors, lawyers, entrepreneurs and so on, who started out in a minimum wage position and gradually worked their way up the ladder of success. However, artificially inflating the cost of labor beyond the value determined by the market hurts not just businesses and consumers, but younger, unskilled individuals who are looking to get a proverbial foot in the door of the employment world.
