Why Raising the Minimum Wage Isn't a Good Idea

Sunday, 17 Feb 2013 08:23 PM

By Sean Hyman

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At first, raising the minimum wage sounds great, right? After all, those at the bottom rung of the economic scale get a boost.

Heck, I remember some of my first increases in wages even coming from that. When I was 16 years old, I worked at a Bonanza steakhouse and made $3.35 an hour until finally the national minimum wage was raised.

Even when I started off in life, I had to work three jobs at once because every one of those jobs was either at or near the minimum wage level. Whew, thank God things have changed a ton since those days.

Editor's Note: Grow Your Savings When The Market Grows Without Risking Principal

So you’d think I would be for a hike in the minimum wage right? Wrong!

Here’s why. If the minimum wage goes from $7.25 an hour up to $9 an hour, then there is a government-induced wage inflation rate of 24 percent that comes to every business that employs minimum-wage workers

You see, when the “price” of employment goes up, you get less of it. Just like you tend to get with most anything that goes up in price.

So in a time when youth unemployment is already so high, is it wise to make the burden 24 percent higher for those who employ these workers?

Therefore, if you’re an employer and you know it’s going to cost you 24 percent more to hire more people, are you going to be likely to hire more unemployed people or are you likely to try to make do with the help that you already have for as long as you can? It will be the latter.

You see, the greatest costs of running a business are payroll and healthcare … and now President Barack Obama is making sure that both are going up on businesses.

So your “liability” or obligation goes up, the more people you hire. And remember, there’s only so much money to go around for payrolls. So if you, as the government, mandate an increase be made, then sometimes job cuts will have to be made.

Ok, so that just deals with the 24 percent spike higher in wage inflation that businesses will incur due to this “great idea” that the president had.

However, it gets even tougher. Why? It’s because not only is he proposing this 24 percent hike in wages but that it also be indexed to inflation going forward.

This means that in most years, the costs of employing people will go up, which means that it could greatly hinder the growth of employment for many, many years.

Additionally, what would happen if we did have reported inflation that was far greater than the 2 to 4 percent that they admit up to today? What if reported inflation got to 6 or 8 percent? That would be a huge burden on businesses.

Additionally, the cost of their products, food, etc. that they make will be rising too as inflation takes its toll on food prices and the prices of things like aluminum, steel, copper, which many products made today contain.

So not only would their wholesale costs be going up, but so would their employment costs all at the same time. A double whammy!

Therefore, I agree with Rep. Paul Ryan’s comments when he said, “Look, I really wish we could just pass a law saying everybody should make more money without any adverse consequences.”

The fact is that this simply is not possible.

The best way to make more money is not through mandated wage hikes, but to invest in oneself through some sort of education or training, causing the employee to become more valuable to the company, which in time mandates a higher wage.

Editor's Note: Grow Your Savings When The Market Grows Without Risking Principal

Additionally, our own work ethic, character and consistencies in life separate us out from the pack, making us more valuable than others in the eyes of employers, which in times makes us “worth more” financially to them as well.

And as an investor, if you want to fight government- and Federal Reserve-made inflation, then come join us in the Ultimate Wealth Report. I’ll show you how to fend off inflation’s horrible effect upon your wealth and even how to profit from our government’s bad judgment calls.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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