Does the Increase in Minimum Wage Lead to a Rise in Salaried Employees' Salaries?

No, the increase in minimum wage does not necessarily result in a rise in the salaries of salaried employees. This piece explores why this is the case and delves into the broader economic implications.

The Reality of Wage Stability

Even with an increase in the minimum wage, many salaried employees do not directly benefit. For instance, a desktop support person making $60,000 a year when the minimum wage is $8 per hour may still be at $60,000 five years later when the minimum wage increases to $15 per hour.

This increase in the minimum wage often leads to cost inflation across the board. Housing, insurance, and taxes become more expensive, driving up living costs. In the case of our desktop support person, their mortgage payment increases from $1,200 to $1,700, due to these additional expenses. Despite the rising costs, their salary remains the same, likely due to a set contract or internal company limitations.

Impact on Employment and Economy

Businesses often struggle to maintain competitive salaries and wages due to increased operational costs. A company may find it difficult to justify paying higher salaries when revenues do not proportionally increase. Consequently, businesses might choose to retain costs by limiting or reducing employment.

Resistance to increasing the minimum wage is significant because it directly affects the profits of multinational corporations and the wealthy. Higher minimum wages can force businesses to relocate to areas with lower labor costs, or they may need to automate their processes to maintain profitability. As a result, the cost of living might rise for all employees, regardless of their salary level, ultimately leading to a broader economic downturn.

Complexity of Wage Legislation: Historical and Contemporary Perspectives

The concept of minimum wages dates back to the 1700s, with Burke’s writings reflecting upon the topic during Adam Smith's time. Despite this long-standing debate, politicians have yet to find a solution that aligns with basic economic principles taught in 100-level courses. The idea that raising the minimum wage can lead to higher labor costs without a corresponding increase in revenue is often cited as a reason for resistance.

During the 2020 U.S. presidential debates, President Trump articulated a key concern: businesses cannot afford to pay wages that exceed the value they add to the firm's revenues. When the minimum wage rises, businesses are forced to reassess their operations, potentially eliminating positions and increasing automation. This shift can leave those starting out in their careers without the necessary experience to secure better positions in the future.

Impact on Different Employee Groups

The minimum wage increase disproportionately affects the most vulnerable: young workers, entry-level employees, and those living paycheck to paycheck. In contrast, salaried workers already earning above the current minimum wage are less affected. However, the broader economic impact can drive unemployment, as businesses prefer to automate tasks or close down operations to avoid spending on labor that doesn't generate profits.

It is also worth noting that in some cases, salaried workers can earn more than their management counterparts, as seen in unionized environments where collective bargaining agreements ensure fair wages. Nonetheless, such scenarios are less common and do not negate the broader pattern.

Conclusion

In conclusion, the increase in minimum wage does not automatically translate into a rise in salaried employees' salaries. Instead, it often leads to increased unemployment, as businesses strive to maintain profitability and competitiveness in the face of rising labor costs. The economic implications of such changes are complex and multifaceted, requiring careful consideration and a nuanced understanding of the interplay between wages and business operations.