Many Americans are sympathetic to the minimum wage. They think that raising the pay of individuals earning low wages is a way to cure poverty. Even President Obama, In his State of the Union Address February 12, 2013, said he favored raising the federal minimum wage from its current $7.25 per hour to $9.00 per hour. In California, the minimum wage is currently $8.00 per hour. But anyone favoring a higher minimum wage should be aware of its history.
The minimum wage began in the late 1930′s. The wage’s sponsors in Congress had two goals in mind.
The first goal was to keep businesses from leaving the high-priced North — states like Pennsylvania, for example — from going to such low-wage locations as South Carolina. If Pennsylvania’s wages were on par with wages in South Carolina, then businesses inclined to leave the North would stay put.
The second reason was to keep certain ethnic minorities from moving from the South to the North. Northern cities were finding that certain minority groups were leaving the South to look for higher pay in the North. If the pay for these minorities were the same in both the North and the South, then the tendency would be for the minorities to migrate north would lessen.
Giving government the power to set wages can be a dangerous precedent. Why not have government set the minimum wage at $10,000 per hour ($208 million per year)? Then, we might all be rich. But just about all of us would lose our jobs.
For individuals earning low wages, why not have government (or a charity) give them some extra money? Such a practice exists under the Earned Income Tax Credit (EITC). For example, if a family of four is earning $15,000 per year, the government could, through the EITC, give the family some extra money, bringing the family up to a so-called living wage.
Another possibility is to have the government subsidize the wages of low earners. For example, a person earning $7.25 per hour could get a government subsidy of $3.75 per hour, bringing the wage-earner up to $11.00 per hour.
For families lacking any income, some cash grants from government could be helpful.
If the government mandates that an employer must pay $9.00 per hour and the employer is not doing well financially, he may have to reduce staff, relocate, or close the business. Forcing the employer to pay higher wages may, is in fact, a job killer.