Unfortunately for entry-level job seekers, a minimum wage also results in foreigners competing for jobs right here at home. We live in a connected world and the higher the minimum wage, the more incentive illegal immigrants have to enter our labor pool. It's a one-two punch that helps explain why low-skill unemployment is higher than it should be.
Placing limitations on workers and what they are allowed to charge may have justification if at the end of the day a minimum wage actually helped those earning it. Alas, there is no Santa, and we cannot simply wish for a magical wealth gift to arrive in a pretty package. The additional above market wages cost to business is passed on in the prices charged. The net result is higher costs for everything from rent, food, electronics, and even lawn care service. We can loosely measure it through the McDonald's (MCD) Big Mac index.
It costs much less to buy a Big Mac in Hong Kong and Singapore compared to New York City. Comparable wages are lower in Hong Kong and Singapore, but so are relative costs of living. It should be obvious to all, including the Walmart (WMT) and McDonald's protestors that if retail employees are forced to charge more for their services, the costs will get passed on in the form of higher prices and or lower customer service.
The point is, all perceived gains from increasing the minimum wage are lost through increases in living expenses. Additionally, a whole host of unintended consequences are introduced. Hidden costs including increased border and immigration compliance costs, a lower standard of living for most wage earners paying higher prices while still having to compete in a global environment, higher unemployment compensation costs, and employee skillsets moving to other countries.
I can fully appreciate people wanting to help others, and so do I. The best way to accomplish a higher standard of living is to allow the free market to work its magnificent, not-so-invisible-hand magic that has lifted more people out of poverty than any other form of capital allocation and control. Central planning destroys wealth and jobs and is the last thing a low skilled worker needs if they want to improve their lot in life.
At the time of publication the author had no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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