What do you think of this argument against raising the minimum wage?

[muon2]

In the OP I would expect that the $12/hour workers are minimum wage workers who have been around long enough to get a raise above minimum. It's unlikely that the first raise is a 20% raise, so let me suggest an alternate scenario.

A company has a large number of entry-level jobs that pay a minimum wage of $8/hour. Employees who perform well but don't seek a promotion can expect a raise of $0.50/hour with each year of service up to a maximum of $12/hour. At that point wages are capped unless they promote to a position that has a starting wage of $13/hour.

The government now mandates a $2/hour increase in the minimum wage up to $10/hour. The company could move everyone under $10/hour up to the new minimum wage, but as has been pointed out, that creates an inequity for employees who have worked for the company for a number of years, so the company adds $2/hour to everyone working the entry-level job. But now this causes the most senior entry-level workers to earn more than the position to which they might promote. To maintain equity, the higher level positions need a raise as well, and so on up the corporate ladder.

In the end this creates pressure to give everyone a windfall raise, that in this case would average about 20%. That's probably unsustainable for most companies, but if it were 3% or something at roughly the level of inflation, it could be sustained without internal problems for the company. I think the argument would not be one against raising the minimum wage, but it would be one against a large single jump as opposed to a series of small steps or an indexed increase.

BTW, this type of situation happens when a company has a unionized labor force and non-union management. The union contract gets negotiated only every few years and it can have a large jump in the first year, like the jump in minimum wage in the above example. I am aware of police departments where a promotion from sergeant to deputy chief in the first year of a contract meant a pay cut because of this effect.