Business Review Board / May 6, 2016

Rising Minimum Wage Shorts Longtime Workers

Minimum wage doesn’t mean everyone’s pay goes up.

Here’s a problem with raising the minimum wage that the $15-an-hour advocates probably haven’t considered: wage compression. Companies like Gap and Walmart made headlines when they said they would increase their minimum hourly wages. But now The Wall Street Journal reports longtime employees at the companies are dissatisfied. They have worked two, three years at the company and they were months away from earning a well-deserved raise. Then, the company raises its starting wage and fresh-faced employees are coming in and earning wages higher than theirs. It’s understandable they’re upset. While Walmart has seen an increase of new applicants, old workers are looking for new jobs because the companies could only raise the wage for entry-level positions. Employees who earned several rounds of raises were only offered benefits like extra vacation time.

This wage compression doesn’t just manifest itself in retail or the fast-food industry. College students study for four years, take on debt, get an entry-level job in their field and they make as much as someone who walked onto the job flipping burgers down the street. It means someone who never graduated high school can earn as much doing a mundane task as a person who’s spent years developing skills. Just because the government forcefully raises the minimum wage does not mean everyone’s pay goes up.

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