The Affect of Minimum Wage on the Recession

A few days ago while standing in the Wal-Mart line the cashier asked me, “Hey, didnt you go to Southern Adventist University?” Ends up we were classmates about 9 years ago. He told me after graduation he’d spent most of the last decade managing a construction firm until it went under. Thus the entry level job at Wal-Mart.

I don’t think this is an isolated incident. As industries shake up highly qualified and motivated people end up jobless. Smart employers snap them up in jobs that normally never hope to attract such talent. The people that normally occupy those jobs shift lower into less desirable jobs, or no job at all.

Established companies aren’t the only ones shopping for unemployed talent Entrepreneurs also thrive on the low cost labor. Back in the 1930’s my grandpa spent a summer working in an entrepreneurial startup–an iron mine. The project failed and he walked away with only food and board. (And some great stories for his grand kids)

Low wage employment isn’t optimal, but at least it keeps money flowing in the economy preventing further disruption. As conditions improve (due in part to some of these new businesses succeeding) the demand for labor is slowly restored. The competition for employees pushes wages back up to their pre-recessionary rates.

But can this happen today? The Federally mandated $6.55 an hour minimum wage means employers must risk at least that much on an employee. For most business that’s not much of a barrier, but for some new business putting out that much cash may simply be too much risk. Will people at the bottom of the economic ladder go unemployed instead? Will this extend the recession? The evidence suggests the answer to both questions is yes.

 


*I’d like to give credit to the Let’s Talk Money show on Chattanooga’s WGOW whose discussion on whether the minimum wage increase caused the recession inspired me to write this article.

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3 Responses to “The Affect of Minimum Wage on the Recession”

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