Minimum Wage = Minimum Employment?

One of the first acts of the 110th Congress that convened in January, 2007 was to raise the federal minimum wage from $5.15 to $7.25 per hour. This raise was to take effect over a two year time span, and we are now seeing the effects of that act of Congress. Many of you work-study students, myself included, might welcome the raise in pay, as a student’s budget can be quite stretched at times. However, one must think about the bigger picture when thinking about such legislation. Did the wage hike really help those struggling in to make ends meet, or has it led to higher unemployment as some pundits have postulated?
Labor costs usually constitute about seventy percent of a business’s total expenses. For small businesses, which form the heart of America’s economy, minimum wage workers form the base of their operations. So a rise in the wage floor would lead to rise in the labor costs. What this translates to is a decrease in the amount of workers that can be hired. For example, a business that has five minimum wage workers that each work forty hours a week at the old $5.15 wage spends $1,030.00 for those five workers. However, at the new wage of $7.25, those same five workers cost $1,450.00 to pay, a $420 increase in labor costs. Simple economics dictates that the rise in expenses must be offset by an increase in profits. In a time of economic downturn, profits are not likely to rise enough to cover these new expenses. So what does a small business owner logically do to stay in the black? Sadly, he or she has to lay off a worker. Many times, these workers tend to be the young, unskilled workers trying to pay for gas money. I’m speaking of the high school and college age men and women that, for many, are working for the first time. Studies have shown that people that held jobs in high school and college are more likely to not only stay employed when they graduate, but also go on to make much more money over the course of their working life.
By raising the minimum wage, Congress has destroyed jobs. Jobs that for the most part go to teenagers and other unskilled laborers. While it is too late now to change the wage floor, a better idea would have been to drop the minimum wage altogether. The laws of supply and demand would dictate that the “minimum” wage or rather equilibrium wage would decrease to about three dollars an hour; however, overall unemployment would fall drastically. Small businesses, large businesses, and non-profits across the board would begin hiring like never before witnessed. One would also see other consequences. Crime, drug-related violence, abortion rates would all fall. People that are employed are not as likely to both consume illegal substances and distribute them. People that have a consistent cash-flow are also more likely to keep unexpected babies. President Obama said during the election cycle that he would like to decrease the rate of abortions here in America. Why don’t we keep him accountable to his statements? Would we rather America’s youth roaming the streets looking for drug money or walking the malls trying to spend money?