February 16, 2006

Minimum Wage Increase in PA.

Here is a copy of a letter sent to the local politicians. Let me know what your thoughts are.

Vote NO for raising the minimum wage. Studies have shown that raising the minimum wage increases unemployment. We do not need higher unemployment. I am not just some crazy constituent with an agenda; I have a degree in Economics and Finance, as well as, an M.B.A. I have done the research and have read the studies to support the evidence presented here.

The economic Law of Demand states that if prices rise, demand will decrease. The Law of Supply states that if prices rise, supply will also increase. A wage is a price paid for labor. The economic Laws of Supply and Demand hold true with labor as well. Therefore, higher wages increase the number of workers willing to work, but decrease the number of workers employers will hire.

Going further, many small business that are barely making a profit now, could be forced to layoff current workers (due to the increased cost), actually creating unemployment. They may even close their business. Studies have also shown, that the people who “need” a minimum wage suffer the most (teenagers, racial minorities, and low-skilled workers).

Yes, increasing the minimum wage may get you reelected to your position, but it will not help Pennsylvania’s economy or our local economy. Jobs will be lost. We need to reduce the cost of doing business in Pennsylvania and our local area.

We need a radical change in Pennsylvania. Eliminate the income tax (replacing it with a sales (consumption) tax) and change the formula for taxing businesses. This will promote investment into Pennsylvania. I do realize, that this is easier said than done, but it will work!


Wesley Matthews


Anonymous said...

Mr. Matthews,

I agree with your points about minimum wage, but I wanted to clarify a few points you made. You refer to those who “need” a minimum wage. Why do these groups need a minimum wage? Wouldn’t it make sense that they would want to make more money? Everybody loves getting a raise. Why do you make is sound as though they need to make that lowest amount possible?

My other question is that if minimum wage is $5.15 an hour and they are working a 40-hour week, that is a gross of around $10,000. Most minimum wage jobs are not a full 40-hour workweek, in all reality they are around 25 hours, thus bringing that gross down to around $7,000.
The poverty guideline for one person in the household is $9,800. For two people its $13,200 and for three people its $16,600. How can one expect to really live off of wages like this? Now they are going to be dependent on our government for welfare, food stamps as well as other services (which is also why they have around 37 kids…more kids equals more benefits). Once they see they are getting these things for free, they do not want to get a better paying job because then they lose a lot of the benefits, thus creating a viscous cycle of people who abuse the system and cost all other tax payers more money. I would rather see the minimum wage raised and have the business suffer rather then our government pick up the slack for lazy, uneducated workers that are taking advantage of the system.

Wesley Matthews said...

The people that “need” a minimum wage are typically the workers who suffer the most. For example, many teenagers will work for almost any amount if they need the money to buy clothes or go to the movies or something. Maybe the teenage will cut lawns for $10 a lawn. It may take them less than an hour or it may take them more than an hour depending on the lawn work needed. Either way they are still making only $10 a lawn.

If a local business can find workers to work for $2.50 per hour, his/her labor cost is cut in half from the other business that must pay $5.15 per hour to its employees. Some teenagers or other low skilled workers may work for $2.50 per hour because they simply have no other legal means of getting money. The same goes for illegal immigrants. Rather than risk being deported they may work for a lower wage than what is considered normal, just to earn money to stay in the United States. That is the reason these certain groups are classified as “needing” a minimum wage.

It is challenging to live off of minimum wage rates. That is why education is so important. It doesn’t matter if it is some type of higher education program or some type of trade or technical school. The people that are accepting minimum wage jobs do so because they don’t have the skills needed for a higher paying job. They will probably still qualify for federal or state benefits while on minimum wage, especially if there are children in the family. However, those people would be contributing to society as opposed to those people who simply live on welfare and do nothing productive with their lives.

My letter was sent to the Pennsylvania representatives, so as not to raise the PA minimum wage. If the federal government is going to mandate a raise in the minimum wage, then that semi-levels the playing field among states. I received responses back from several of the representatives. In fact, yesterday, I received a response back from Senator Santorum. He supports the federal minimum wage increase, only if there are measures in it to protect small businesses from the increased costs of labor. The raise in minimum wage has been voted on 3 times recently and has been rejected each time.

In summary, the minimum wage does not really help anyone. The increased costs for business are simply passed on to the customers, who then demand more money from their employer, which then increases their costs, or the customers purchase less thereby reducing demand for the product and the need for the labors, which then increases unemployment. As we approach full employment, which is about a 4% unemployment rate, wages will rise. Why? The demand for labor will be strong and the supply of labor will be small.

Anonymous said...


What were some of the responses you received back? Did they agree with you or take the other position? What were Senator Santorum’s measures to protect small businesses? I read an article the other day about Ben Bernanke. He pretty much has the same views as you, that it will do nothing for unemployment, it will hurt small businesses and those that need that minimum wage. Why would they want to raise the minimum wage if its not going to do anything productive? I guess like you already stated they are doing it to get re-elected. Is there that a large of voters making minimum wage to win an election? I would have to think not, when I was only making minimum wages I didn’t even know what was going on in the country. Who is voting for this?

Junior, The Tanning Specialist

Anonymous said...

Check out this article, it brings up some really good points.

Junior, The Tanning Specialist


Wesley Matthews said...

The voting people perceive raising the minimum wage as a wonderful thing, especially for those people who are not making minimum wage. They view this as an opportunity for them to get a raise as well. And the cycle continues, the prices of goods and services raise and no one is any better off, but the politicians get re-elected because they “did something” for their people. Unions are especially for a minimum wage; this justifies the host cost of the labor in their organization. Their rational? Minimum wage workers are low skilled and union workers are high skilled. Therefore, if the minimum wage is say $7.00 per hour, then the lowest hourly wage for a worker in their union should be no less than twice that or $14.00 per hour. And this is way GM is in such financial trouble. They pay their union workers (with benefits included) about $60 per hour to put a nut on a bolt!

Here is a summary of the responses I have received from the elected officials.

Rendell – No Response

Specter – No Response

Santorum – Will vote for a raise in the minimum wage if there are provisions for small businesses, but he did not specify what provisions would be necessary. I would suspect through reduced taxes or government grants.

Murtha – Has voted for all minimum wage increases in the past and will continue to do so in the future.

White – Is for the idea of higher wages, but realizes the negative impact that a minimum wage has on small businesses and would not vote for a minimum wage increase.

Reed – Is against the minimum wage and agrees that the tax structure of businesses needs to be changed.

The link to the article is right on, but people won’t listen to it or believe it. In all likely hood, the minimum wage increase will pass in PA and many of the elected officials will be re-elected.