August 28, 2013 – Obama’s proposal to raise minimum wage will actually cause problems for small business owners and the nation’s young job-seekers, says NFIB’s chief economist Bill Dunkelberg.
The plan to raise the minimum wage from the current $7.25 to $9 per hour is part of an effort to increase consumer wealth, thus increasing disposable income and consumer spending. In theory, it sounds like a good way to boost the economy.
But is this change really a victory for the workforce?
According to Dunkelberg, an increase in the minimum wage would result in the following negative outcomes:
The plan to raise the minimum wage from the current $7.25 to $9 per hour is part of an effort to increase consumer wealth, thus increasing disposable income and consumer spending. In theory, it sounds like a good way to boost the economy.
But is this change really a victory for the workforce?
According to Dunkelberg, an increase in the minimum wage would result in the following negative outcomes:
- Higher unemployment: Business owners will have to cut their employees to be able to pay those that remain the higher wage. Furthermore, the higher minimum wage will be an incentive for owners to find ways to permanently reduce labor via technology.
- Reduced job opportunities for teenagers and new workers: Fewer minimum wage jobs available will make it harder for the younger work set to find jobs, denying them a “stepping stone” into the workforce and the chance to learn invaluable skills.
- Reduced customer spending: the high cost for labor will be passed to the customers via the price for goods and services. As prices increase, consumers buy less.
- Accordion Effect: the entire wage structure will be affected, causing an overall loss of wealth among working consumers.
These arguments are rooted in what Dunkelberg calls an "irrefutable law of economics": "The higher the price of anything, the less will be taken—this applies to labor as well as goods and services," Dunkelberg said.
About Your Bottom Line with Bill Dunkelberg
NFIB's web series, Your Bottom Line With Bill Dunkelberg, helps small business owners learn more about what drives the economy and how economic issues affect their businesses. William Dunkelberg, NFIB's chief economist and one of the nation's top experts on small business.
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