During Obama's state of the union address last week, one of the most discredited, damaging and outright stupid political snake oil initiatives has been trotted out yet again to 'help' the downtrodden: Obama proclaims that jacking up the existing federal minimum wage from the current $7.25/hour - already $7.25 per hour too high - to a dizzying $10.10 per hour will help the poor.
Bunk. It will make more people poor, on the whole. Some people will benefit in the short term from this mandate, but in the aggregate we will all be worse off in the long run.
When I say that the existing federal mandated minimum wage of $7.25/hour is exactly $7.25 per hour too high, that is because it is inarguable that the true, exact and immutable minimum wage is exactly $0.00 per hour, and this figure is exact to the 1/100th of a penny. Zero, nada, zilch per hour is what somebody makes when an employer just doesn't have the means to justify hiring an employee in the U.S. today.
But Obama and his Utopian dreamers in the faculty lounge dismiss the reality of the situation, and they will mandate paradise on earth, and in this case, legislate a minimum hourly wage standard of $7.25 per hour, or if Obama gets his way, $10.10 per hour. What this mandate (either one, the old minimum or the new, doesn't matter) in effect results in is increased unemployment, or more people earning the true minimum wage: nothing per hour.
A wage or salary is nothing more and nothing less than the cost of labor. The price of labor. Everything worth while in this world has a price, and the prices of the means of production are all relatively well known: the means of production, as economists call them, are in effect land, labor and capital. Each has a price. A well established price at any point in time.
Economically, if a price for something is too high, people will balk at paying that price. They will find alternatives that meet their satisfaction, rather than pay too high a price for something. Say, for example, some beach front property in southern Florida next door to Donald Trump's Mira Lago compound goes up for sale for $1,000,000 for an adjacent acre to the Donald's digs. Whoa, you say, I'm not going to shell out a cool million just to say I live next door to the Donald. Forget that, there's another piece of property down the road, that is only going for $825,000 an acre. I will be fine with that.
And so that kind of behavior goes for virtually any transaction in America. Economically speaking the higher the price of anything, all else held constant, the lower the demand for it. When Obama or any Democrat squeals for higher minimum wages, they are squealing in effect for higher unemployment.
An employer will simply not just sit still and eat this increase in the cost of their payroll. They can do many things to cope with this new mandate, and among the alternatives are: eat it, let the increase come out of their profit margin. Not likely, as employers are in business to make a profit, not just to employ people. They can perhaps pass on the cost to the consumer of their product: also, not likely. That's not the way things work in our economy, because if they jack up the cost of their product over that of their competitors, they will lose market share. And when they lose market share, they lose profit margin. See above, employers don't like that to happen.
What is most likely to happen, is that they will just do with one less employee: if they had three employee's at $7.25 per hour before Obama's new $10.10/hour mandate, the odds that they will simply fire one of the three employees is high. How is that better for these minimum wage employees?
It's fine with the two remaining employees. It's a disaster for that third employee who just lost his job, thanks to Barry, and subsequently earns the true minimum wage: bumpkus per hour.
It is just that simple.