The clamor for an increase in raising the minimum wage is reaching yet another peak as it has done periodically over the years. The first federal minimum wage was instituted in the National Industrial Recovery Act of 1933, signed into law by President Franklin D. Roosevelt, and ever since that time the cries for more money for the “working people” have been sounded.
Many states across the country have been joining in. More on those results below.
An artificial increase is just that—artificial. Which means it has no validity or basis in reality, in this case economic reality. And yet, critics argue, who could possibly be against giving more money to those especially in entry level jobs? What’s the harm? Shouldn’t one’s paycheck keep up with the cost of living (which, by the way, is directly caused by another artificial government increase, inflation).
In fact, there is harm done by raising the minimum wage.
First of all it needs to be asked, and this is an important, but often overlooked point: what right does the federal government have in dictating to any employer how much they should pay the people they choose to work for them? How is that a good thing?
A business owner might decide one worker is worth more or less than another, depending on their value to the company. And there’s nothing wrong with that. It’s not demeaning nor does it sleight the worth of the workers in question outside of their jobs.
In any business or operation, some people are simply more valuable to a company’s goals than others. This is a fact. Factors like experience, talent, competency, etc. all play into how much an employee makes upon being hired as well as any future raises they might receive. In fact, if they don’t perform, they get fired.
So, for example, younger people get paid less than older people on average because of the experience the latter bring to a given operation. That is logical and shouldn’t be changed by government dictate. However, there are also young superstars who might command a higher salary than a much-more seasoned worker simply due to their talent and what benefits they bring to the company.
Again, variables exist in determining the pay of all workers, and the choice to make such decisions should be left solely to those in charge, not a bureaucrat in a state house or Washington, D.C. Even those in charge and their salaries are at the (justifiable) mercy of the market or company shareholders: if they can’t cut it, they’re out.
That’s the moral side of the equation. The economic side also bears repeating again, even though many brilliant economists have been pounding home the reasons for years now and their logic apparently always falls on deaf ears.
First of all, as many economists have noted and documented, only a small percentage of American workers actually make the minimum wage—but an overwhelming percentage of those who do are restaurant workers. This means any impact of minimum wage laws is likely to be most visible in the restaurant sector.
California fast food owners are currently going public on national media, noting that the state’s mandated increase in the minimum wage has created a hiring freeze and many layoffs.
Fact: California’s increase in the minimum wage law took effect in April, and in a 10-month period since the mandate kicked in, the Golden State shed more than 6,000 jobs. That’s roughly a 1.1% drop in fast-food employment, according to an analysis of federal labor data. To compare, during the same timeframe a year earlier—before the law was passed—the California fast-food industry experienced a 3.1% increase in employment, adding more than 17,000 jobs.
So, when California was losing jobs, U.S. fast-food restaurants added roughly 74,000, a growth of 1.6%, during this period, according to an analysis by the nonprofit Employment Policies Institute, which is against government-mandated higher wages.
Second, we know the general effect minimum wage increases have on labor markets. Of course, some workers may benefit temporarily from a pay hike, but this comes with numerous other tradeoffs. These could mean the loss of benefits such as health insurance or a flexible work schedule. For others, as research highlighted by the Harvard Business Review several years ago showed, it’s reduced hours and less compensation overall. For others, it’s a doubled workload.
None of these tradeoffs are appealing for these folks who work, but they’re better than the worst effect of minimum wage hikes: being priced out of work altogether: There is overwhelming evidence that minimum wage laws reduce employment.
“[The] body of evidence and its conclusions point strongly toward negative effects of minimum wages on employment of less-skilled workers, especially for the types of studies that would be expected to reveal these negative employment effects most clearly,” wrote economists David Neumark and Peter Shirley, who recently analyzed “the entire set of published studies” since the 1990s.
Some politicians swear they are fighting poverty with minimum wage hikes, but the great writer and economist Henry Hazlitt had it right when he pointed out that minimum wage laws create poverty: “For a low wage you substitute unemployment,” Hazlitt famously observed in Economics in One Lesson, one of the classic books in free market literature. “You do harm all around, with no comparable compensation.”
Since minimum wage laws effectively outlaw jobs people would otherwise fill, Nobel Prize-winning, free market economist Milton Friedman saw these laws as “about as clear a case as one can find of a measure, the effects of which are precisely the opposite of those intended by the men of good will who support it.”
In closing, we hope you enjoy this edition of the Mississippi Business Journal and we always appreciate your input. Please email me directly at scott@msbusinessjournal.com with your thoughts and story ideas.
On behalf of the staff of the Mississippi Business Journal, we wish you a happy and prosperous 2025.
