The Minimum Wage is not Enough
Karl, you ignorant, coldhearted, Canadian schlub.
Many like you have argued the negative economic consequences of the minimum wage. I suggest those are a pittance and irrelevant. The issue is one of protecting the exploitation of workers by their greedy corporate masters and building on the foundation of our economic system – the middle class. This may sound a little strange coming from someone who describes himself as a free market capitalist, but I am one of those lucky people who have gone from relatively rich to poor and back. How did that happen? Fidel Castro.
Let me debunk the macroeconomic arguments first. The common arguments suggest that the minimum wage hurts small businesses, drives inflation, encourages employers to downsize and outsource to cheaper labor markets, and ultimately and artificially increases the cost of goods beyond their value. But in the final analysis, the minimum wage does not even provide an income that reaches the poverty line.
First off, let’s take a look at the claim that the minimum wage leads to inflation. The figure below shows that the minimum wage and the CPI have both roughly increased seven-fold in the period between 1960 and today. Aha, you might say! That’s a perfect correlation! Sure, but correlation is not causation. If you take a look at the next chart, you can clearly see that there are historical events that have nothing to do with the change in minimum wage. For example, in the 1970’s, inflation was driven by self inflicted, misguided policies that led to an oil crisis, long gas lines at gas stations, and runaway interest rates.
The lost jobs argument also doesn’t hold water in a macro sense. Once again, the reality is that the total number of jobs added has grown despite increases in the minimum wage. Zero growth and job losses can again be attributed to other factors. The loss of jobs to cheap labor markets because of the minimum wage is a canard. Everyone benefits from lower costs, especially those who earn a minimum wage. The problem is that industry does a miserable job of developing its workforce into higher skilled and therefore better paid jobs. We can’t, nor do we want to compete with the rest of the world based solely on the cost of our labor. Our economy has been built on innovation and a higher productivity than the rest of the world.
Lastly, the ups and downs of corporate earnings and dividends have zero correlation with the minimum wage as shown by the chart below.
Moving away from the numbers, the argument that says the minimum wage is not designed to provide a living wage – that flipping burgers, making beds, or pumping gas (back in the day) is not a career – is elitism at its worst. Not everyone has the capability to become a doctor or to break into the PGA tour. Should we deny someone who is willing to fill a “menial” job a chance at the American (or Canadian) dream?
In 2009, the federal minimum wage will increase to $7.25/hr. or $15,080 annually. It is estimated that less than 5% of the workforce is paid minimum wage. The poverty level in 2007 was $21,027, or around $10 per hour, which is the rate at which the guys hanging around Home Depot will work around home, tax free. In 2007 there were 37 million Americans living below the poverty level. Furthermore, the minimum wage has failed to keep up with inflation. Personally, I find the term “minimum” to be problematic. It seems to me that the minimum wage ought to be pegged to the poverty level for starters.
While we’re willing to throw trillions of Dollars at Wall Street, Detroit, and hundreds of pork projects, we are unwilling to consider bailing out those who need it the most, those living below the poverty line. What would that cost? To bring the 5% of the population that is earning the minimum wage up to the poverty level would cost $90 billion per year. That’s 4.5% of the estimated cost of the stimulus package. It’s 0.7% of our GDP. Not only is it a drop in the bucket, most of it goes right back into the economy through consumer spending, which benefits everyone.
Rush Limbaugh and some of his pals argue against the minimum wage by asking “why stop at $7.25, why not make it $20 or $100?” Well, that’s a strawman Rush, no one is suggesting that. What happened to the compasionate conservatism?
I’m not going to take a cheap shot at overpaid CEO’s. It’s an altogether different problem that is unrelated and perhaps the subject of another post. I’m not going to discuss the political pandering aspect of the minimum wage debate either. Dogs bark, politicans pander.
In summary, a small adjustment to the minimum wage can make a huge difference in the living standard of millions of Americans at a negligible cost (if any) to the rest of us. We need to stop competing on wages and start competing on innovation and productivity again.
28 Comments »
- Admin/About TLRB
- Corporate Finance
- Credit Crisis
- Death and Taxes
- Frauds & Scams
- Get Rich Quick
- Internet Scams
- Multi-Level Marketing
- Personal Finance
- Quote, Lore, Wisdom
- The Gamblers Fallacy