By RU Twisted
“Give America a raise!”
That’s what the President said in his State of the Union speech. Cheerfully and to the sound of applause, mind you.
He was referring of course to the desire of some political movers and shakers to raise the current minimum wage by legislative act. Recent polls indicate that the majority of Americans support this very thing and so the President’s comments should come as no surprise.
But that doesn’t mean it shouldn’t be addressed.
There are several reasons why the minimum wage shouldn’t be raised, many of them requiring essay-length explanations. That’s not how we roll, however; so we give the quick, down, and dirty (much like a lightweight on dollar-drink night).
Short answer: raising the minimum wage is wealth redistribution. There is no way around that. It doesn’t create any more money than already existed—it simply moves it, via government bureaucracy, to another spot.
While that may seem like somewhat of a good idea to a few of you, stop and consider two very important words that we have written and spoken numerous times here:
I don’t care how you try to gussy it up, raising a wage across the board for everyone by fiat in no way relates to individuals earning anything. If a mandate comes down from on high, it is not because certain persons worked harder and more diligently than their fellow human beings. It is simply taking money from one person or business and moving it to another.
Stop and consider the realities of increasing minimum wage for a moment. First, who makes minimum wage? We can start with fast food workers because it is the easiest and most prevalent example.
Let’s imagine that the minimum wage is moved to $10.10 as the President has suggested. Where do those extra dollars come from? Does the CEO and his top staff magically say “oh, well, I guess we have to take a cut in our salaries to pay these workers more…”?
Not only no, but hell no. That’s not the way big businesses work and they never have. Any corporation the size of McDonald’s or Burger King simply offsets the raise in payroll dollars by….wait for it…a slight increase in the price of the product.
This increase is felt by the consumer, of course. The problem being that it is often in small increments, which makes it easier for those in the high-chairs of law to explain that it isn’t really a big deal.
Well, yes it is a big deal because eventually, if the cost of products continue to rise, guess what? Everyone needs to make more money. If everyone needs to make more money, then the “raise” given to minimum wage really doesn’t mean anything. It becomes an arbitrary number (more on this shortly).
Where the real danger comes in with this argument is in how it affects small businesses. Consider Coca Cola. If the minimum wage is raised to $10.10 an hour, they could add $0.03 to every soda they sell and probably cover that extra payroll. The volume of large companies like that makes it very simple to absorb the costs of mandatory increases such as minimum wage.
But what about Mom & Pop Soda—the small business just trying to carve out a niche in their own community? Their relatively small volume means substantially higher increases in product cost. This is seen much more readily by the consumer who can price match cans of soda next to one another before purchasing and leads to the inevitable reduction in sales for the goods that require more of that cash stuff.
This can easily translate into employees of small businesses being laid off due to the inability of the organization to keep up with payroll. The desire to stay afloat as a company often outweighs the need to employ X number of people. This concept applies whether it is a soda company or any number of other industries.
The other irrational portion of raising minimum wage comes in the number itself. The President says $10.10. But why stop there? Why not $12 or $15, as many are suggesting? If a two or three dollar an hour raise is so great for the economy, wouldn’t four, five, or six dollars be that much better?
Of course at this point in a discussion with anyone in favor of raising the minimum wage devolves into name calling whereby the person asking these questions is accused of hating poor people and kicking wounded children for money. It is, for example, nearly impossible to cite facts such as the reality that, in real dollars, today’s minimum wage is well over 80% greater than the original benchmark set when minimum wage was first introduced.
Keep in mind that the number of people who fit into this category is much smaller than you’ve been led to believe. Additionally, the idea that increases by legislation leads to growth in productivity is largely a myth.
What’s the takeaway from all of this? If you remember nothing else, realize that no piece of legislation from the government creates wealth. Legislation can, at best, give a freer marketplace to operate in, but the creation of wealth lies solely within private, for profit industry. Passing laws that make those businesses pay certain amounts of money to their people is, as stated earlier, simply a redistribution of wealth and nothing more.
In the bigger picture, while the concept may give a quick boost to the economy, the fact is that it will be short lived and ultimately only succeed in doing what our economic policies have been doing for decades—devaluing the dollar. Don’t give in to the temptation to think that an arbitrary raise for the status quo by law will in any way benefit us in the long run. It hasn’t and it won’t.
*Author’s disclaimer: Before you get all up in my grill about shilling for “the man” with this post, keep in mind that I most likely make less than you do and I still don’t think it’s a good idea.