What happens if Puerto Rico increases the minimum wage? What are the consequences? More poverty, more unemployment

A well-meaning, but misguided reader suggests that minimum wages protect employees and employers.

“The minimum wage was established to protect both the employees and employers from taken advantage of the other. When it is too high cost of living and expenses to a corporation would cause it to close or shrink, not to mention the ripple effect of increase cost that will be past to the consumer. If not in place many corporations will underpay their employees, knowing the people will stay to avoid change, aka fear of loss or laziness.
Laziness is a disease that is affecting your people, this is not a result of them as much as complacency of the welfare state another ploy of the liberal left to control the mass and beating down the human spirit. The welfare state exists only to gain votes and maintain control of the people at wages far less than minimum wage, or a version of hidden slavery.”

Puerto Rico Newcomer responds:

If companies in PR are forced to pay $15 per hour as a minimum wage, for example, this would cause 2 main things to happen. First, employment levels would drop tremendously. The lowest skilled, least valuable, most vulnerable people would be out of a job, replaced by more automation. There would be fewer entry level jobs for the less skilled, for the less educated to gain experience.  You would be harming the most, the very people that most need help.  Why do some interns take jobs for $0 in pay?  They do it to gain useful skills and experience, allowing them to be paid more in the future.  Why do millions of students pay money to gain skills and knowledge?   So they become more valuable and are worth more.

A higher minimum wage would put many more struggling businesses OUT of business. The biggest beneficiaries of a higher minimum wage would be the bigger companies, the big chains that have more resources, that can adapt quicker with more automation and robotics. Most of those bigger companies are from the states, such as Burger King, CVS, McDonalds, Walgreens, Walmart. The companies that would be most harmed with a higher minimum wage are the smaller Puerto Rican companies.

Second, you think all these employers whether they are mega chains like Burger King and Walmart or small mom and pop stores with only a few employees are going to pay $15 per hour without raising their prices? Of course not! Labor cost is a huge component as a business expense. Force businesses to raise minimum wages and you will also force them to raise prices on all the products and services they sell.

So with more people laid off, there are fewer people able to afford increases in prices. Those who still have a job might be earning X percent more in wages, but for all the things they must buy, they must pay X percent more. For example, whether a worker gets $10 or $50 more in wages, for the things they must buy, they have to pay $10 or $50 more for the items that the businesses increased in price, to cover their higher labor costs.  They are in the same position as before, as they earn more but also have to pay out more for what they needs to buy.  However, many other employees were laid off since they were not worth it to the employer at the higher minimum wage. Guess what the minimum wage is for all those who lost their jobs? $0! Many employers will make the rational decision to employ fewer workers, when faced with forced minimum wages.  The least skilled, least efficient, least useful workers who no longer have a job are getting $0 in wages. Thus, the REAL minimum wage is $0.

Another way to think of it is, what if some politician wanted to interfere in the market, forcing a minimum selling price of haircuts for $100 per haircut for men that were previously $10, so that customers could no longer “take advantage” of barbers, hairstylists by paying them only $10? The government thinks it knows best, that the hair care workers deserve a minimum of $100 per haircut. Would men get the same number of haircuts? Not at a barber or beauty salon! You would likely put most barbers and hairdressers out of business. Most men would get their girlfriends, wives, or friends to cut hair for them at home. Others would grow their hair out longer or shave it off themselves. Many would wait until they travel to the states to get a free market $10 haircut. How many people would pay $100 for a minimum price haircut instead of finding alternatives. Only the richest men would be willing to pay $100 for a haircut. The higher the price something is, the less affordable it is, and the less will be sold. The same concept applies to labor. Don’t throw common sense out the window by thinking you can raise the price of labor through an unfair minimum wage, without rational employers looking for alternatives – namely more automation and fewer employees, as well as raising the prices on their goods and services.   Another example was in the summer of 2008 when the price of oil hit almost $150 per barrel.  People made rational decisions to buy more fuel efficient cars, take more public transportation, take bicycles, or walk.  It’s a basic and common sense economic principle that when you raise the price of something that less of it will be consumed, as people seek out alternatives or do without.  Employees receiving a forced higher minimum wage would not be immune to this basic economic concept.

You also said that a minimum wage protects employers. It doesn’t protect employees or employers, since instead it harms both of them. A maximum wage would be harmful too. Following your logic, should we have maximum wage laws to to protect employers from greedy employees wanting too much money? Of course not! A maximum wage would force the most skilled, most qualified employees to leave or work less. Why should someone study hard, work hard to develop their knowledge, skills, and abilities if they are not allowed to earn what the free market says their skills are worth, even more than the maximum wage? If a worker’s skills are worth $100 per hour, but the government passes a $20 per hour maximum wage law, those workers will not bother working as hard. Why should they work hard when they don’t get credit for it?

To put this in a monetary concept, what if a bank had a maximum deposit credit rule of $20 per day, no matter how much money you brought them. No rational person would give the bank more than $20 if they maximum credit to their account would be $20. Would you deposit a $100 bill if they only posted $20 of it to your account, keeping the $80 difference for themselves? Of course not. You would ask them to deposit only $20 of if, giving you $80 back. It would take you 5 days to deposit $20 per day to deposit your full $100. This would create huge inefficiencies both on you and the bank, needlessly wasting your time. Think about the artificial interference a minimum or maximum wage law would create for society.   It would also create more crime, since it would be known that people carry more cash in their wallets, due to the artificial deposit maximum of $20 per day, making people more at risk for being mugged.

Study the real world to see what happens in real life, not what Socialists say to deceive people, to make them feel good without realizing the harmful unintended consequences.

One need not speculate or have a misguided fantasy that an increased minimum wage would help society.  That’s already been tried, the results of which can be read here which is a real life result showing the tremendously harmful effects of minimum wages.  Again, if you care about Puerto Rico and Puerto Ricans, you would be for free markets, for NO minimum wage laws, no government interference in the marketplace.

https://puertoriconewcomer.wordpress.com/2017/06/12/what-puerto-rico-can-teach-us-about-the-minimum-wage

 

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One Response to What happens if Puerto Rico increases the minimum wage? What are the consequences? More poverty, more unemployment

  1. It’s a dominos effect. Products and services are always going up. Mind you that rents are not controlled here. A studio apartment can run $600.00 with or without utilities. We are living in an extremely expensive world.

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