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Home / Finance News / Raising The Minimum Wage…Good Idea?

 

According to a recent article in the New York Times, President Obama supports a Democratic proposal to raise the federal minimum wage to $10.10 an hour. Having started my working career when the minimum wage was $3.15 an hour, that seems to be an incredible amount of money. Some statistics quoted through the Huffington Post show that ”a $10.10 minimum wage would have pushed more than half —58 percent —of the nation’s 10 million-plus working poor out of poverty in 2011.” Ensuring that people are being paid enough to rise out of poverty sounds like a great idea, but is it really? Let’s have a look at a few of the pros and cons of a higher minimum wage.

Pros

Obviously, the major pro from the standpoint of those making minimum wage is a bigger pay check. At the current rate of $7.25 a minimum wage earner working full time is paid $208.80 assuming a 40 hour work week and a total of 28 percent paid for all taxes(federal, state, and local). The proposed wage would allow them to take home $290.88. That is a nice raise of just over $82 a week.

With a higher minimum wage and fewer people living under the recognized poverty level there should be fewer people receiving federal assistance. That means fewer food stamps issued, fewer welfare checks paid, etc. That could move us a little closer to a balanced budget.

More money in the pockets of people should mean more money being poured into the general economy.

Cons

First off, who is eventually going to be footing the bill for a higher wage? It will not be the companies that employ people at the new wage. It will be the consumer. Businesses will recoup the higher cost of workers by raising the price of every item in their inventory. Another cost cutting strategy that will most likely be used is buying inventory from outside of the United States. After all, other countries allow workers to be paid much less. If you doubt that, look at the tags on your clothes. You will most likely find that 90 percent or more are made somewhere in Asia. Those higher prices will eat into that $82 raise.

When you look at the jump per hour and a total net raise of $82 a week, a higher minimum wage sounds awesome. Yes, it is enough to peel millions off of the welfare rolls. Once they are off the food stamp program or no longer qualify for medical assistance, where will that $82 raise go? It takes a great deal of planning to feed a family of four or five on $82 a week. What if someone is sick? With no insurance, or even with the minimum overage required under the Obamacare debacle, these wage earners are going to be faced with huge bills that they will never be able to pay. Again, this lack of an ability to pay will be recouped through higher costs to everyone.

After reading the previous two paragraphs, you can see that the idea of more money in the pockets of minimum wage earners will not translate into more money going into the overall economy. It will simply go to the same places as before. Instead of food stamps, it will be cash at the grocery. Instead of a medical card a doctor will get cash or an unpaid account.

A higher minimum wage will follow a predictable pattern as it has in the past. There will be an outcry that people are going hungry or skipping medical procedures and in response to this reality, the federal government will react as it always has…it will change the poverty level, allowing the people ”rescued” from poverty by the higher minimum wage to receive the federal programs they were excluded from. And so the cycle will continue. I wish that I had a better plan or some grand scheme that would end our struggles with poverty. Unfortunately, all I can do is observe and offer what is surely an unpopular opinion.

 

About the author: Jerry Coffey

 

Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.

 

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