The newspapers on Tuesday (August 29) morning were filled with news about a letter House Speaker Dennis Hastert (R-IL) sent to President Clinton proposing a new deal on an increase in the minimum wage.  The Speaker has decided for political reasons to reduce Republican tax-relief demands in exchange for going ahead with a two-year $1 hike in the minimum wage.

Another minimum wage increase-no matter what kind of deal is cut in exchange-would strike a blow against small business owners and young, low-skilled workers.  Small business owners would be forced to make tough decisions about hiring new workers, expansion, capital investments, and the pay and benefits of other workers.  After all, an almost-20-percent hike in the minimum wage does not come without costs, as pandering politicians would like us all to believe. It's not like workers would be receiving a pay increase resulting from higher productivity, hard work, diligence or loyalty; instead, pay would be increased due to government decree. 

As for low-skilled and young workers, a minimum wage hike might sound good, but in reality, it means fewer available jobs.  That means fewer opportunities to gain work experience, and climb the economic ladder.

In essence, a minimum wage increase is a tax.  And business owners and unskilled workers primarily pay that tax.

While some of the effects of a minimum wage hike are temporarily and partially masked during good economic times, those effects are no less real.  A minimum wage increase raises costs for businesses, and reduces job opportunities for those who need them most.  And during the next economic slowdown, the bite of a minimum wage increase will be truly severe and apparent to all-perhaps even politicians.

Raymond J. Keating
Chief Economist
Small Business Survival Committee
and co-author of
U.S. by the Numbers:
Figuring What's Left, Right, and Wrong with America State by State