Raising the Minimum Wage will Hurt Consumers - Your Bottom Line

Date: August 28, 2013

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Quick Facts:
  • President Obama has proposed increasing the minimum wage from the current $7.25 to $9
  • Most minimum wage workers are from above median-income families
  • Many of those at minimum wage skill-level are not part of the labor market, as most people at or below poverty level do not work.
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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:

  • 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, entrepreneurship, consumer behavior and consumer credit policy, hosts the series.

About NFIB

NFIB is the nation’s leading small business association, with offices in Washington, D.C., and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan organization, NFIB gives small and independent business owners a voice in shaping the public policy issues that affect their business. NFIB’s powerful network of grassroots activists send their views directly to state and federal lawmakers through a unique member-only ballot, thus playing a critical role in supporting America’s free enterprise system. NFIB’s mission is to promote and protect the right of members to own, operate and grow their businesses. For more information visit www.nfib.com.

About William Dunkelberg

Bill DunkelbergWilliam C. Dunkelberg has been chief economist for NFIB since 1971. He is currently professor of Economics at the School of Business and Management, Temple University, and served as dean from 1987-94. He was director of the Center for the Advancement and Study of Entrepreneurship from 1991-94.

Dunkelberg is a nationally recognized authority on small business, entrepreneurship, consumer behavior and consumer credit policy. He has been an advisor to cabinet officers, a member of the Consumer Advisory Council of the Federal Reserve System and is a past president of the National Association of Business Economists. He has chaired the Census Advisory Committee and is an elected member of the Conference of Business Economists and the National Economic Issues Council. He is also a frequent contributor to broadcast and cable news programs and is often quoted in leading newspapers and magazines.

Related Content: Press Release | Labor | Minimum Wage | National

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