A simple lesson in microeconomics is enough to show a student that raising the minimum wage is usually a bad idea.
In the next few years, a lot of people are likely to visit Los Angeles. In 2026 and 2028, the city will host the FIFA World Cup and the Olympics, two of the most important sports events in the world. Tourists coming to the city will definitely bring in a lot of money for businesses all over the area. Some leaders in the area and the state of California want to raise the minimum wage because they expect a boom to happen soon.
As of January 1, 2023, the minimum wage for the whole state is $15.50 an hour, and the minimum wage in some counties is close to $18 an hour. Curren Price, a member of the Los Angeles city council, wants to raise the minimum wage to $25 an hour. The goal is to raise it by a dollar every year until 2028, when it will be $30 an hour. At first, this was meant for people who worked in local hotels and airports, but now some leaders want to see growth in all retail sectors, including tourism.
A simple lesson in microeconomics is enough to show a student that raising the minimum wage is usually a bad idea. For people who aren't economists, raising the minimum wage means less poverty and safety from employers who are too greedy.
But it isn't that easy.
The minimum wage is a great example of a price floor, which is what economists call it. Price floors set a minimum price that is higher than the market value. This is different from price ceilings, which set prices below the market value to make buyers happy.
In the case of a minimum wage, the sellers are selling their labor, especially less skilled labor. A sudden rise in employee pay would almost certainly lead to a rise in prices for goods and services as a whole, which would mean less money coming in and maybe even cuts. Instead, lawmakers in the area should let the big sports events in Los Angeles bring a lot of tourists and drive up the need for workers. As a result, the way the market works will automatically cause workers' wages to go up.
Changing the minimum wage also tends to reduce the need for people with low skills. If the minimum wage keeps going up, general wages will be about the same as for workers with more skills. Imagine for a moment that we live in a world where workers with less skills and workers with more skills are paid the same.
Who could a company choose to hire?
I'd fight for the worker with more skills. Their projected output will be much higher, and because they will be more productive, they will probably make more money. Basically, companies will change their minds and choose to hire people who may have special training or college degrees as an investment in the future to make their businesses more productive. This can be stopped. The key is to make a bigger difference between the wages of people with low and high skills.
There's something to be said about how the minimum wage is wrong. At its core, the price floor rule sets the value of your work artificially, regardless of whether a company agrees or not. If a company can't grow because it has to pay people a certain amount, it can't hire more people. Both firms that want to hire workers and people who want to work are ready to work for less than the minimum wage. Why? It's a win-win situation for both sides. So, let them do it. If you don't, you'll end up with nothing.
The tourism industry in Los Angeles is already getting ready for the next big wave of guests. The FIFA World Cup and the Olympics are expected to bring in a lot of money for the local business. Most of this money will be spent on lodging, transportation, food, and shopping. It is important for policymakers to stay out of the way so that businesses and workers in the city can take advantage of the possibilities these events bring.
