Radically Centered: Minimum Wage Isn’t The Answer

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Minimum Wage increases won’t help the poor, no matter how high you raise the rate.

By Justin Shimko

The State of the Union, oftentimes the best and most-watched speech of the year for a President, is typically where we see new policy initiatives and a recap of previous ones, successful or not. What we saw Tuesday night, however, was far from that. Since President Barack Obama has been spending his post-election campaign laying out his lame-duck agenda for the next two years, he took the center stage to deliver what many have called a narrative speech. He took his time telling stories to illustrate why America should follow him down his path of higher taxes and spending. And while Republicans rejected the plan outright - let’s face it, we are more than a few obstacles away from holding daily Kumbaya sessions in the House chambers - it wasn’t because the objectives the President is seeking are bad or dangerous. Who doesn’t want to see a nation without poverty, with higher Internet speeds, and no illegal immigration? What keeps from the objectives from succeeding is because the proposed solutions are misguided and have the strong potential of creating more harm than good.

For example, when Obama mentioned raising the minimum wage, he resorted to rhetoric and avoided facts to make his case (albeit brief) on why we should establish a $15 per hour wage. No statistics were laid out, unlike his discussion on healthcare and energy consumption. I am guessing this is because the numbers are not in his favor. Raising the minimum wage is seen as a way to get millions of Americans out of poverty, an effort to reduce the number of people who work two jobs to make ends meet and to create a “just wage” for their work. It ignores the fact that only 3.3 million - out of 330 million - are currently on minimum wage or that at least half of them are younger than 25, with a quarter of the minimum wage population of high school age.

No mention was also made what to do when the cost of living goes up as a result of the wage hike. Money does not magically appear in the economy, despite what many people think through stimulus checks or increased government spending. The higher paychecks have to be paid somehow. Does anyone realistically think the companies printing those checks will just eat the cost from their profits? I’m sure their shareholders would balk at that idea. Instead, it is likely the consumer will have to pay (if it isn’t another potential employee that pays by not landing that job that once was available to them at the lower rate). And we will see that through a decrease in the purchasing power of the dollar. It won’t be a one-for-one increase on a burger, but a one-for-one percentage increase, at least, in the overall cost of living. Those people making the federally mandated $7.25 an hour will be no better at $15 after the full impact of raising the minimum wage is felt.

And, since we have a new minimum wage, we also have more people on minimum wage. So, basically those people who made between minimum wage and $15 will now see the value of their skills and seniority diminished to those at an entry-level job at McDonald’s. They basically were demoted to the bottom of the wage pool for no reason. Their ability to afford a few more things has now disappeared because the cost-of-living has increased and their salary did not increase along with it. This doesn’t even bring light to the millions of middle-class Americans who have seen their ability to buy consumer goods with their disposable income shrink because they did not see a comparative increase.

Yes, those millions of Americans will no longer be in poverty, but that’s because the poverty line will have remained stagnate as the wages shifted upwards. Now, instead of $23,850 being the poverty line, the income where millions cannot provide for basic necessities, the government will have to have it at $50,000, when factoring the percentage increase of wages to cost-of-living compared to today’s level. That level institutes poverty at nearly half the current working population. And if you aren’t raising the wages at the same rate, you’ve established a wage compression and loss of purchasing power for the middle and lower classes.

To make things worse, all that has been done is a slow down in wage growth for the millions not making minimum wage, compressed wages to prevent wealth generation for all Americans, not just the 3.3 million currently making the lowest wage, and a negative redefinition of poverty by putting more people in the worst possible financial position.

How is that working for the people?

Justin Shimko

Justin Shimko is an award-winning writer and political analyst. He began as a reporter in his college days at the University of Oklahoma, writing for The Oklahoma Daily (rated as one of the best collegiate newspapers in the nation) and The Oklahoman, the statewide newspaper, winning awards from the CSPA and the Society of Professional Journalists. He later moved on to research and writing work for a number of political campaigns. His email is [email protected]