Minimum Wage Increase Equals Doom

    Governor Ed Rendell (D) of Pennsylvania, with one stroke of his pen, just signed into law the death blow to true economic growth that the state badly needs. This death blow is in the form of the recently passed law that will see minimum wage increase from the current federal standard of 5.15 and increase incrementally over the next few years until finally reaching a level of 7.15 per hour. This increase in the minimum wage might sound like a decent idea at first to many who don’t think beyond the ramifications of what this actually means to future job growth. Yet, this is going have drastic ramifications in the one area that matters most job growth, also known as new business growth.

    The reason this increase is going to have this type of ramification lies in the fact that once a government body begins mucking around in the economy on any level, even setting standards of wage, the only end result that can happen is disaster. For instance, since the increase of minimum wage is going to take place now and employers will be forced to pay employees this wage, the effect that will happen is actually less jobs being created by the employers. The cause of this is the increase in minimum wage has forced the hand of employer were extra capital might have been used to hire on an extra hand or two, must now go to keeping on what employees they have.

Eventually this can lead to even further problems for the company as understaffing becomes a major issue and production or quality of service slips due to lack of personal. Thus, the end result of the scenario is that the business either moves out of state where economic opportunity is better for the owner of the business, or the business closes due to an inability to remain competitive in the market. Either way the end result is the same, instead of having a person working, you now have an unemployed worker begging the government for more handouts.

    Just as the above scenario shows what happens for a business already in the state, the same can be applied to any business owner or entrepreneur who might be interested in starting a business venture in the state. Why should the business owner or entrepreneur want to start a business in a state that dictates, by point of a gun, what he is going to pay his employees? Any business owner is going to take his business elsewhere; to a place that market conditions are more generous when it comes to the rights of the business owner, not the worker. Thus, no new economic growth comes from out of state and no new jobs are being created from new businesses and established businesses can’t create more positions due to the stipulations of the minimum wage law.

    Nationally this type of arbitrary wage increase, either by the government or by a union, is the very source to the current problem of illegal immigration running so rampant today. When new business owners’ are faced to paying a wage of 7.15 to a legal resident of the state or pay an illegal 5.75 for the same job and more likely than not, get a better work performance from the illegal then you would from the worker getting paid at the higher wage? The answer to this question is obvious for it is the one that makes more economic sense for the business owner, especially if one is paying a 7.15 dollar wage to a dishwasher.

    Yet, instead of decreasing and eliminating many of the taxes that are forced upon Pennsylvanians and thus actually increase the tax base, Rendell feels that it is more important to give workers a higher arbitrary wage then to allow them to keep more of the money they earn. Instead of increasing the tax base and creating an economic friendly atmosphere, he is doing the opposite, driving away both employer and worker, to states that have lower taxes and employers hungry for new workers. When the time comes, this writer will be writing in more economic Free State in the near future, to earn his own keep and to keep what he has earned.

 

(Part one of a Discussion on Economical Theories)