Why a Minimum Wage Increase Is Like Chasing Your Tail

By now you all know about the efforts by the president to increase the minimum wage for people.  He is doing this because he thinks this will level the playing field between those who earn a lot and those who don’t.  But it is disillusioned dream on many levels.

First, if employers are forced to rIse wages on top of the already heavy burden of increased health care costs that have been mandated, many small employers, of which employ the vast majority of Americans, will be increasingly forced to cut back staff expenses.  They may do this by laying off staff, cutting their hours, bringing in more automation or even relying on more foreign labor, even if that foreign labor is in this country illegally.

But it goes deeper than that.  When the bottom rung of low or unskilled jobs command more money per hour, it puts pressure on jobs at a higher level to pay more as well.  This creates a ripple effect up through the job tiers as people with more skills, more experience, more education, and more at risk require higher salaries to justify the effort they put into getting where they are and staying there.

This applies especially to small business entrepreneurs who risk not only a large amount of their own money, the money of other family members, friends, neighbors, and others, but also much of their time and lives, especially time they could have spent with family.  Why do that except for the potential of much greater reward?  If America is to remain the land of opportunity, there must be compensatory reward for an individual’s efforts.  Don’t think for a minute that these business creators would put forth this level of effort if they merely received the same income and benefits as the unskilled workers they hire.

Why would a young adult want want to become a doctor, surgeon, engineer, lawyer or any other professional if they did not make substantially more than the unskilled burger flipper who did not go to school for 4 to 8 years (or more), paid out thousands of dollars or took on large amounts of debt to get the training and degrees they needed and sacrificed  for years after graduation to pay back that debt?

This does not go against the concept of fairness, but is the very definition of fairness.  Fairness must consider the whole, not just the salary of a person.  Salary has for the most part always represented the level of skill, the amount of effort and the degree of risk required to perform any job.  These factors are not something that can be ignored by dictating a new salary without expecting a corresponding ripple throughout the rest of the economy.

What does that mean?  Well if the lowest level jobs get an increase in salary, the jobs atr the next level up will demand a corresponding increase to justify the effort they expended to meet the requirements for that job.  And if one employer doesn’t raise that group’s salary, another one will, one who needs those higher skilled employees to achieve their goals and dreams. However, then the demand for more money ripples up to the next level to those employees who are required to have even more skills, education, and/or responsibility.  And on it goes all the way to the top because why would a person risk their money and devote their time to advance their education, some would say life, if the return was hardly more than that hourly worker?

Of course the business can counter the higher salary demands by cutting staff, reducing hours or making full-time positions part-time.  They can subcontract work out to lower salary countries.  They may even be able to raise prices of their products or services.  They may even decide to close their doors and then everyone suffers.

But in the end, the results are the same.  Those same people at the bottom of the wage pool begin to cry out for higher wages to keep up with increasing costs.  Eventually, one political group or another hears them and decides to take on their cause.  Not because they truly believe in income equality because if they did, they would lower their own salaries as a show of support.  Rather, they take on the cause to divert attention from other problems.  Maybe they are behind in the public opinion polls and figure that they can get a quick surge in their popularity by appealing to the lowest income classes with their ‘quick fix’.  And thus we have come full circle.

The real problem is that any gains by boosting the minimum wage are short term as described above and merely create a cycle.  No real productivity improvement has occurred to increase the overall value of the economy.  No new products or services have been developed.  No new markets for their products and services have been opened.  So the result is a vicious cycle.

The only way an individual can get out of that cycle is by investing in themselves to develop new skills, learn new techniques and concepts, create a new product, service or company.  You could also say that the reason the rich fall back to middle class the middle class descends to poverty occurs when they lose the drive, the incentive to make things better.  Thus society as a whole could be viewed as a pot of boiling water with some of the poor and middle class rising to the top as they get hot while others fall back down as their drive cools off.  Through all of this, it is not the artificial support of individual wages, or company bailouts that determine success, but their collective efforts to make a difference and grow the economy as a whole.

C’ya next time.


3 comments on “Why a Minimum Wage Increase Is Like Chasing Your Tail

  1. I had similar thoughts to you on this same topic. Unfortunately, I feel that we are entering the socialization of America. Rather than realize a ripple effect of increased wage we will experience a narrower gap between skilled and unskilled workers which effectively means we’re all gradually being demoted from upper middle to lower middle and then out of the middle class altogether.

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