On Friday, the federal minimum wage will increase from $6.55 to $7.25, an increase of almost 10.6%. This increase is the final installment of the minimum wage increase that Congress added to the 2007 Iraq War spending bill. The program will raise the income level of many Americans who are currently employed in minimum-wage, often entry-level positions. Unfortunately for Congress and the American public, this legislation will have several unintended consequences.
Raising Minimum Wages Will Increase Unemployment – As any Economics 101 student could tell you, if the price of labor increases, employer demand for labor will decrease. This increase will exacerbate the already-gloomy employment climate in the United States. An increase in minimum wage will directly impact industries that are most reliant upon minimum wage workers, fast food restaurants, hotels, and independent retailers. Workers in these sectors will be most impacted by the minimum wage increase, “A 10% increase in the minimum wage is associated with a 1% decline in retail trade employment” according to Dr. Joseph J. Sabia, of American University.
Raising Minimum Wages Will Reduce Opportunity – Positions that pay minimum wage provide an opportunity for employees to gain invaluable work experience. These experiences, such as customer service and basic retail skills, allow employees to increase their productivity. Increases in productivity lead directly to increases in wages; two thirds of minimum wage workers earn a raise within their first year of employment. Eliminating these entry-level positions will have a negative impact on the economy. 62% of minimum wage earners under twenty-five years old work part-time. These workers are employed in positions that allow them to acquire skills and experience that will allow them to garner raises as their productivity increases. Raising the minimum wage will only decrease these workers’ access to entry-level positions, and deprive them of the opportunity to increase productivity and wages in the future.
Considering the current economic landscape, Friday’s federal minimum wage increase, which will affect businesses in the thiry states that currently do not have a minimum wage of at least $7.25, will hurt the economy. It will increase unemployment and raise prices in impacted industries. Raising the federal minimum wage is not sound policy in the current economic climate.