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The Negative Impact of Raising the Minimum Wage

My intention with this article is to provide informative views of considerable social and economic impact to enlighten you with its concern.

Businesses will close if they are forced to pay more than they make.

Businesses will close if they are forced to pay more than they make.

Why the $15 Minimum Wage Is a Bad Idea

This article provides an informative fact-based review of its consequences, confirmed with credible references.

Raising the minimum wage to $15 isn't the solution for low-wage workers. If they are not worth it, they will lose their jobs. They need to generate revenue greater than their salary to stay employed, or the company can't afford to pay them.1

  1. If an employee's work doesn't result in more revenue than the company pays, the company will lose, and the business will go bankrupt.
  2. Companies hire people as an investment, and it needs to be profitable.
  3. If a company is forced by law to pay employees more than the work generates, it will eventually go out of business, and the workers will lose their jobs.

Some People Have the Wrong Idea About Why They Are Hired

I learn a lot about how people think by asking questions such as:

  1. What is the purpose of your job?
  2. What is the value of your work?
  3. Are you compensated well for your work?
  4. Do you make more money for your company than you are paid?

When I ask what's the purpose of their job, they usually answer, "To support my family."

They either misunderstand the question or don't know why companies hire people. It should be no surprise that it's to benefit the employer. A company always needs to have positive revenue.

I spoke with some people who were out of work and received job offers. But they turn the offers down, and I need to ask why.

They tell me the pay is too low and they deserve more. They won't work for less than what they feel they deserve.

When I hear that, I ask, "What is the value of their work on a per-hour or per-day basis?"

I never get a straight answer. They simply don't know.

Then I ask, "Do you feel you can make more money for your employer than you expect in salary?"

Most people don't understand that question. They think I'm crazy for suggesting that they should give more to their employer than they would get in return.

Just think about that for a moment. These people feel it's owed to them. I wonder where they get that idea?

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For another example, I ask people to evaluate their performance on the job and if they feel they are compensated well for their work.

I'm shocked to hear some people tell me that they don't want to work harder until they get paid more.

Hey! It doesn't work that way!

I hired people in the past for my business, and I consider it an investment. When an employee's job performance brings in more than their compensation, I give them a raise. They deserve it because the investment in them paid off.

However, raising the minimum wage without considering one's performance capability isn't a solution. If the minimum wage is higher than the value the employee can achieve for the company, they would not be hired in the first place.

Understand the Facts About Minimum Wage

A company hires people for only one reason. It's an investment, and they require a profitable return. If they can't get more in return, there is no reason to hire or keep that person.

People who demand a $15 minimum wage for low-paying jobs are clueless. They don’t understand the only way to be paid $15 is to do a job that earns more than $15 an hour for the company. If the investment in an employee does not produce more than the cost, then the position is not necessary.

Asking for more pay without giving the employer more results is a losing battle for everyone. What are they thinking? They don't understand how it works.

That's why we have this issue in political discussions. The minimum wage advocates don't understand how finances work. I'm afraid we will see a lot of layoffs whenever lawmakers increase the minimum wage.

The only real solution, other than automating the low-wage tasks, is to educate the employees so they know how to generate more money. Then their salary will naturally increase without the need for an artificial minimum wage.

A $15 Minimum Wage Would Negatively Affect Small Businesses

Hiring personnel is considered an investment and companies need to see a positive return. An employee is an intangible asset.

We cannot place a monetary value on an employee's knowledge and experience, but being an investment, they need to produce more income for the company than they are paid.2

Employees need to show their worth to get promotions and raises. If they genuinely believe they are worth it, they should prove it. Then, when management sees a return on their investment, they would be inclined to give a raise to profitable employees.

People need to show their value to the boss.

People need to show their value to the boss.

Raising the Minimum Wage Would Increase Consumer Costs

The reduction of regulations that President Trump promised and fulfilled has made it easier for companies to do business and hire more people in the United States rather than outsourcing labor.

Unfortunately, some politicians still favor increasing the minimum wage without concern for the consequences. Small businesses that survive on thin profits will have to raise consumer prices to cover the higher labor costs.3

A $15 Minimum Wage Could Increase Unemployment

Raising consumer prices to cover increased wages is not a feasible solution in the long run. Either of two things can go wrong:

  1. Companies that can't survive under these conditions might consider outsourcing to hire personnel in other countries. That could drag down the quality of the products and support.
  2. Raising prices to cover higher wage costs might lose customers. That would, in effect, require less personnel and a need to lay off some workers.4

Either way, employees are the ones who lose out.

A $15 Minimum Wage Makes Getting That First Job More Difficult

The following short video explains why a starting wage of $15 increases unemployment and especially hurts people looking for their first job.

Workers Would Be Replaced by Outsourcing and Automation

Companies will fire personnel that can’t bring in more than $15 an hour to cover the cost of their wages.

Kathleen Caminiti, an attorney at Fisher Phillips who studies wage and hour practices, explained how they would use other solutions when eliminating jobs, such as hiring overseas and implementing AI automation.5

The other day I called a particular company for support with a product I had purchased. My call was routed to a support rep. I asked the lady where she was located since I detected an accent. She said she was in India.

Today's technology allows hiring business support personnel overseas to handle customers' phone inquiries.

Outsourcing to China is another example. According to an article in US News & World Report, that has cost 3.2 million jobs in the U.S. from 2001 thru 2014 alone.6

Over-Qualified Personnel Are Hurt Too

I have known people who refuse to take jobs that pay less than their previous employment. That is indeed another problem when one is considered overqualified.

They feel they deserve more. I do not doubt they think that way, but it's better to take a job at less pay if it helps pay the bills and work hard to get an increase later.

If things work as expected, it will lead to a raise when their talents are recognized, and management notices that they generate more income for the company.

It doesn't matter if we are talking about $15 an hour or $100 an hour. The fact remains that the employee must earn more than their wages for the company. If they can't achieve that, then there is no point in hiring that person. As I said, it's an investment.

Two Other Problems Often Overlooked

1. The Problem With Overpaid CEOs

Since hiring people is an investment, that should go for the CEO too.

CEOs should deliver more than they earn! The salary the company pays these top managers should also be considered an investment. If top management personnel fail to make a profit, they should not get more than they earned for the business.

2. The Problem With Government Agencies

Government agencies often hire people at a specific wage without considering if it's profitable.

They don't think like a business. They don't care about controlling spending and don't focus on profit because they can always raise taxes to cover the loss.

An Alternative to Raising the Minimum Wage

Clearly, corporations need to show a profit, and no one should complain because that creates jobs. But corporations should consider the need to provide training for newly hired personnel. Many large corporations already do that.

Here's a solution. The government should motivate companies to provide training to employees by rewarding them for offering such an employment benefit. That could be done with a tax reduction or a tax credit for providing on-the-job training that moves people into higher income brackets.

That will motivate companies to hire personnel even if they don't start off having complete knowledge of the work. With proper employee training, workers can be taught to offer more value.

I see no reason any company in their right mind would hesitate to increase wages once they see a return on their investment.


  1. Norm Brodsky. (March 2016 Issue). “Beware the Consequences of a $15 Minimum Wage” - Inc Magazine
  2. Peter Georgescu. (June 13, 2018). “Your People Are Your Future” - Forbes
  3. James Sherk. (January 19, 2017). “$15 Minimum Wages Will Substantially Raise Prices” - The Heritage Foundation
  4. Jack Kelly. (July 10, 2019). “The Unintended Consequences Of Raising Minimum Wage To $15” - Forbes
  5. Chris Marr. (January 15, 2021). “Biden’s $15 Wage Plan Faces Debate Over Pandemic-Era Impact” - Bloomberg Law
  6. Katherine Peralta, Staff Writer. (December 11, 2014). “Outsourcing to China Cost U.S. 3.2 Million Jobs Since 2001” - US News & World Report

This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.

© 2011 Glenn Stok

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