The uncomfortable truth about minimum wage.

There are times in life when I can argue politics and truly see the point that the other side is making. I may disagree with it, but at least I can see where they are coming from. Other times, it seems like some points-of-view are more than merely a difference of philosophy, but an entirely different thought process that I am incapable of grasping. Lately, I have been struggling a lot with people who think that the answer to poverty is to raise the minimum wage. I can’t even pretend to see the advantage of this move, so it is really hard for me not to come across as smug…try as I might.
For me, the problem starts long before we even get to the point of discussing wages, workers, inflation, and economics. For me, it starts with defining poverty. Hate Capitalism if you like, but the US has reaped many generations of benefit from our imperfect little system. The standard argument is that capitalism makes the rich, richer and the poor, poorer. I venture to say that we have a LOT to learn about poverty in this country. The poorest of the poor in this country still possess more than a large population of the rest of the world. In the US, poor means having to take public transportation, having to eat Ramen Noodles, or not having a smartphone. To much of the world, poverty means that many children starve to death. It means that there is no clean water. It means that there is no safe shelter. That said, my argument begins by thinking that we need to get over our feelings of entitlement and accept that being a poor America would be a dream-life for much of the rest of the world. As our “poor” citizens dream of home ownership and luxury cars, the “poor citizens” in many countries dream of having a meal every day and pray that their starving children live through the night.
With THAT soap-box out of the way, let me address the issue as it begins for most of us: wage disparity.
Is it necessarily fair that a CEO makes $1Million dollars a year and a laborer makes minimum wage? Probably not. I guess. I don’t know. Maybe? Maybe not? The truth is that it doesn’t really matter if it’s fair, because no one ever said that life was fair. It’s not fair that I’m balding. It’s not fair that I was born with only 9 fingers. It’s not fair that I’m not handsome. It’s not fair that I wasn’t born a Kennedy or a Rockefeller. LIFE ISN’T FAIR! We need to get over this feeling of entitlement that we have; this feeling of social-class jealousy. If someone has invested their money, their lives, their blood/sweat/tears into a company to make it a success, why SHOULDN’T they reap the benefits from it without being labeled a monster for being successful? It really does boil down to jealousy. Maybe they were born with the investment capital, maybe they earned it…but we don’t care. They have what we want, so we expect the government to go be the playground bully and beat him up, steal his lunch money, and then share it with us. Our concept of ‘fair’ has been skewing out of control for decades. As with anything in life, when a benefit is given, the first generation is thankful for it, the second generation expects it, and the third generation doesn’t know how to live without it.
So, for argument, we’re going to pretend that it is completely ‘fair’ and equitable to raise minimum wage by, let’s say 10%, for the ease of mathematics. In Illinois, lawmakers are actually throwing around talk of a 20% hike. So, moving away from a paper argument, what would that actually do for a minimum wage worker? For simplicity’s sake, let’s say that they were making about 9 bucks an hour, and with the hike, they would make 10. Currently, they are making about $360/wk, which would increase to about $400/wk. That’s a $160/month increase that would obviously be a welcome change to any of us. But really…is there anyone, and I mean ANYONE who doesn’t think that the business owner (who is now having to pay OUT that increased $160/month/employee) won’t raise their prices to make up the difference? Of course they will. Wages make up a significant part of any business’s expenses. One would be hard-pressed to find a business that would just say, “lose about $160/week for every employee? SURE…why not. The bottom line doesn’t really matter…and hey, if I explain to the electric company why I can’t pay the bill, I’m sure they’ll understand….” Hogwash. The fact is that the total price of consumable goods will increase at about the same proportion that the increase in minimum wage affects their payroll. The worker makes more cash, but the worker’s monthly bills all go up about the same amount. The only thing that we have succeeded in doing is causing an inflation bubble. And quite frankly, I think that we are delusional if we think that the companies won’t pad their pockets and raise prices to slightly ABOVE the new pay matrix.
Again, for the sake of argument, let’s pretend that somewhere, there is some relief…that somewhere in that 10%, some companies didn’t quite raise their prices accordingly, and the average worker was actually able to keep some of that cash for himself.... The next question is ‘how far-reaching is this ‘inflation bubble’?’ I believe that it is further-reaching than we can afford. As that worker’s wages went up, and the price of goods followed, we inadvertently caused another problem…we priced ourselves out of the international market.  The US does not exist in a vacuum.  We have to compete with foreign markets; we have to maintain an equitable price. As the price of our products is artificially inflated, we lose our edge to compete in an international market. On the homefront, the opposite happens: foreign goods don’t rise in wholesale price at the same level that domestic products do. That said, one of two things happens. The distributor either raises the prices of the foreign goods, making a higher profit margin, or the distributor chooses to make the same profit margin regardless of wholesale cost, making the foreign product less expensive in the retail market. Either way, the American product becomes more expensive. Will some buy the American product regardless of cost? Yes. Will everyone? No. The end result is American lay-offs and production slow-downs based on the number of people who choose to pay the higher prices. The irony, of course is that the minimum wage worker is getting further and further behind…or worse, laid off…while the business owner is making a higher profit margin selling foreign goods. The truth be told, this has been going on for many years, and is just one of the many reasons that our jobs are going overseas. At some point, the American people need to get back to critical thinking instead of basing our decisions on sound-bytes and feel-good legislation. Too often there are long-term consequences that are never weighed and considered. We've stopped thinking for ourselves.  Instead, we trust the government to do our thinking for us. Then, when this all backfires, the government looks at us and says, “see what a mess this is? You need us more than ever!” No. We need to stop artificially inflating prices and accept the fact that, as long as wages and prices stay relative to each other, it doesn’t matter what the dollar amounts actually are. If we truly want to help the minimum wage worker, the best thing that we, as a country, can do is to stay competitive. Increase our GDP, lower the trade deficit, increase production. As production increases, jobs increase. As production increases and entry-level jobs are created, current jobs increase in pay and responsibility. As production increases, per capita unit pricing lowers. As production increases, growth is required in other areas to sustain the increase in production. Our problem in this country is not that minimum wage is too low. The problem is that production, and therefore jobs, been driven to other markets…often by the very legislation that was designed to make lives better.