Minimum Wages Laws Having Economic Effect Should Be Abolished

I'm looking forward to a good debate. 1. Con speculated that business would not cut employment when the minimum wage is increased, but rather would fund the cost from profits. Does that actually happen? "Overall, when the minimum wage increases by 10%, unemployment rises by +2% to +6%" (Richard Burkhauser, Kenneth Couch et David Wittenberg, "Who Minimum Wage Increases Bite: An Analysis Using Monthly Data from the SIPP and CPS", Southern Economic Journal, 2000). "Teen unemployment in Illinois averaged 25.8 percent in 2009; in 2005, that number was 15.3 percent. Exacerbating the rise in teen unemployment was an 45 percent hike in the state's minimum wage between January 2005 and October 2009. ..Faced with increased labor costs from a minimum wage increase, employers can either slash the number of low-wage jobs they offer, or hire more skilled applicants. Either way, the door for employment is effectively shut for less-experienced teens searching for that all-important first job." http://illinoishomepage.net... A review performed by the U.S. Congressional Joint Economic Committee considered over 100 independent studies of the impact of minimum wage increases. Three cited studies found no increase in unemployment when the minimum wage was raised, but these were the rare exceptions. "While it is not yet clear why Card, Katz and Krueger got the results that they did, it is clear that their findings are directly contrary to virtually every empirical study ever done on the minimum wage. These studies were exhaustively surveyed by the Minimum Wage Study Commission, which concluded that a 10% increase in the minimum wage reduced teenage employment by 1% to 3%." http://www.house.gov... Why are there exceptions? As I noted at the outset of this debate, if the minimum wage in a local area is below the prevailing free market wage, then an increase will have no effect. So why was Con in error? Con argued that competitive market pressures would cause employers to keep staff for fear of losing business. But business owners do not worry about the volume of their business in preference to its profitability. If they do, they will soon be out of business. The competition is not just from others in the same industry, it is also from alternative opportunities. If a business cannot yield more that putting their capital in the bank, then the low-profit operations will be phased out in favor of a savings account, or some other passive investment. No one is going to operate at a loss for very long The margins in businesses that use minimum wage labor tend to be thin. "Based on the 2004 Restaurant Industry Operations Report published by Deloitte & Touche LLP, average pre-tax profit margins range from 4-7%" http://rrgconsulting.com... One study showed the failure rate for new restaurants "was 57 percent to 61 percent for a three-year period " http://www.restaurantowner.com... Another study showed the three year failure rate to be 45% http://www.restaurantowner.com... Clearly these businesses do not have lavish profits to be used to absorb increased costs. Increasing the minimum wage causes job loss. 2. Con said, "The idea that automation causes unemployment is one of the most repeated economic fallacies still around today." The argument then presented depends upon the notion that there is no value other than labor, so the cost of machines necessarily implies that there must be an equal amount of employment needed to make it. The argument is false. For example, around 1900, 90% of Americans were engaged in agriculture. Thanks to automation, 4% of the population now produces vastly more food. However, it is not the case that 86% of the population is now making farm equipment, thereby evening the score. While some higher paying jobs are created related to equipment, many more low-skilled jobs are lost. It might be good economic policy overall if we had a surplus of high-skilled labor and a shortage of low-skilled workers, but that's not the case either. The government should not have a policy of making low skilled workers unemployed. Over time, automation will continue to gradually displace low-skilled jobs, but it does not benefit society for government to increase unemployment deliberately. Contrary to Con's argument, automation primarily replaces low-skill labor with capital, not with high-skilled labor. 3. Con argues, "Who ever said minimum wage laws cure poverty? They merely help workers support themselves." If the idea behind the laws is not to fight poverty, then what is the motivation? Con argues is that small increases in the minimum wage are absorbed by reduced profits. That claim is not supported by the evidence. Unemployment increases whenever the minimum wage is pushed above free market levels. Business works on the margins, and they will cut back the operations that are not producing a return on investment better than can be obtained elsewhere. 4. Pro contends that "If employees can get paid more hourly for their work, they work harder." The reason the employee is at the minimum wage is that they lack the skills or ambition needed to get a higher paying job. The minimum wage laws say, in effect, "You deserve more for doing exactly what you are doing." That undermines the desire to work harder by providing an unjustified sense of entitlement. Con argues that employers can run a welfare system more efficiently than the government. That does not address the question of why employers should be forced do so, or attempt made to force them. If employers wants to support some people for charitable reasons, they are free to do so. There is no justification for government unfairly demanding that employers bear a burden greater than other tax payers, many of whom can better afford it. Con argues that it is better to have people employed than on welfare roles. I agree, and that is why minimum wage laws should be abolished. The data shows that the minimum wage causes unemployment. Instead, the government could allow people to be hired at low wages, and then supplement wages in those cases where people qualify for support. As a debate point, it is valid to contend that something be ended because there is a better alternative. The minimum wage destroys long term incentives as well: "Individuals between the ages of 16 and 24 accounted for 53 percent of all minimum wage-earners in 2005. When the minimum wage rises, it increases the incomes of teenagers with minimum-wage jobs, making entering the workforce more attractive. This, in turn, can be expected to cause some students to spend less time in school and more time working. While the overall number of minimum-wage jobs might decrease, if employers prefer to hire teenagers to low-skilled adults, the number of teenagers enrolled in school would drop. … Recent research has confirmed exactly this effect. David Neumark, professor of economics at Michigan State University, and William Wascher, a researcher with the Federal Reserve, found that minimum wage hikes decrease the proportion of teenagers enrolled in school." James Sherk, http://www.heritage.org... Competition extends globally these days, so artificially increasing American labor costs drives jobs overseas. That's obvious for manufacturing, but it extends to other industries. A fast food restaurants have their drive-thru orders taken by staff in India. http://www.democraticunderground.com... Vacation resorts in low-wage areas compete successfully with the American industry. Field crop farming can relocate to other countries. Legislatures should not be forcing increased unemployment in a misguided and counterproductive attempt to get employers to pay welfare costs. The resolution is affirmed.