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Minimum wage hurts the poor

Date: 9/11/2013

This letter is in response to an op-ed in favor of raising the minimum wage.

A minimum wage stifles the economy, hurting all classes of society. The rich can usually survive. It is the poor and the middle class who are hurt the most.

The minimum wage does not just raise people’s pay, it also raises the cost of living. The op-ed discussed McDonald’s, so let’s use them as our example.

If the minimum wage goes up, it affects everyone McDonald’s does business with as well. McDonald’s not only pays more to their employees, they also pay more for raw materials, more for office supplies, more for utilities, more for maintenance, more for transportation, and so on. They have to raise their prices to offset the rise in expenses.

Not only McDonald’s, but every business will have to raise its prices. The people who make minimum wage will have to pay more to live – much more than their raise in wages.

There is another way minimum wage harms the economy. Companies grow by hiring more employees. Companies who find it harder to make a profit because of the new minimum wage will either cut expenses by letting some workers go, or they will suspend plans to expand because the lower profit is not worth the risk of expanding. Raising the minimum wage is a disincentive for companies to hire, raising unemployment.

Put another way, an hour of labor is always worth an hour of labor. Whether you pass a law that dictates that hour to be worth $4, $6, $8, or $10, it will not change the value of the hour. What will change is the value of the dollar, and it will show up in rising prices all around the economy, as well as rising wages (in nominal terms, not in buying power).

For those who think this isn’t so, let me state that it is not normal for real estate or the stock market to rise 5 to 10 percent year after year, unless the economy is growing at the same rate. The reason real estate and the stock market have risen so sharply in recent decades is because of inflation and the devaluation of the dollar.

Raising the minimum wage is no different than the following scenario: a legislator’s doctor tells him that he needs to lose weight. The legislator weighs 200, and wants to go down to 160. So he succeeds in passing a law that a new 1 pounds will equal 1.25 old pounds. He has just legislated his way from 200 pounds. to 160 pounds, but really hasn’t done anything about his weight problem. The same way, the wages of everyone else rise to reflect the higher cost of living and the devalued currency, and the problem has not been solved.

As for Robert Reich’s petition regarding McDonald’s and Walmart, it is a disingenuous scheme to deflect blame from the Federal government, whose policies for 100 years have brought us the current mess, and to scapegoat business. McDonald’s and Walmart help poor people – they offer goods at very low prices. In a free market, consumer is king, not the employee. When a consumer chooses a product or service in a free market, he is actually voting with his money. These businesses have helped millions of consumers buy goods for cheaper.

Minimum wage, and Robert Reich’s petition, are socialistic policies. The founding fathers of the U.S. rejected socialism simply because it makes people poorer. It also robs people of their freedoms.

I urge the author of the op-ed and all readers to educate themselves in Austrian Economics. It explains how economics really works and how government intervention stifles the economy, creates bubbles, and ruins people financially.

Chaim Kosofsky