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Thoughts on the minimum wage

Connor Roth | Friday, April 12, 2013

On Feb. 12th, in his State of the Union address, President Obama discussed a wide variety of issues – arguing for gun control measures, elaborating on corporate profits and mentioning the Affordable Healthcare Act among other things. But, one other specific issue I’d like to consider further is the President’s call to raise the minimum wage up to $9 at the federal level. In his address, Obama stated raising the minimum wage “would raise the incomes of millions of working families” and continued to offer other arguments in support of his proposition. While society would agree with the President that no person should be marginalized or left in poverty without help, we should step back from the emotional charge of his speech and consider whether a federally mandated minimum wage would be an effective way to help those who need it the most.
Minimum wage is a misnomer. The true “minimum wage” is zero dollars; you don’t get paid if you don’t have a job. Instead of saying the federal minimum wage is $7.25, we should be saying we aren’t allowed to earn a wage between $.01 and $7.24 dollars. As someone who believes in the freedom to spend your time as you see fit (and receive compensation in accordance with a contract), the constitutionality of a minimum wage law appears to be more controversial than one may initially believe. Sadly, if I value my labor at $6 an hour and a business values my time at that same amount, I guess I’m just out of luck.
Now, since it doesn’t look like the minimum wage is going to be declared unconstitutional any time soon, we can start discussing its effectiveness and whether or not raising it to $9/hour would actually achieve the goal it was designed to accomplish: helping the poor. Numerous studies have been conducted by economists on both sides of the argument, but in one article produced in the Wall Street Journal on Jan. 10, 2013, author Jason Riley provided data which found that less than 20 percent of people being paid minimum wage live below the poverty line – the majority of people affected by the minimum wage are young people who are entering the workforce for the first time. It appears that raising the minimum wage would create the most displacement in employment for individuals between the ages of 16-24 – and make it harder for those who are trying to gain entry-level experience to find and keep a job, instead of accomplishing the intended goal of helping low-income families.
It appears many of those in favor of increasing the minimum wage would argue that the positive effects the increase would have on the poor would outweigh the deadweight loss the rest of society faces. It just seems to me there could be programs or charities that could be better organized and more effective at targeting the poor and allocating resources to them, rather than just increasing the federal minimum wage across the spectrum.
Consider this: if someone has a heart attack, a physician would not simply focus on unclogging the blocked artery – the doctor would also attempt to remedy the long-term problem at hand (e.g. high blood pressure). To compare this anecdote to the economy, we should also focus on why we have inflation, which leads people to demand higher wages. One might look to “QE Infinity,” the devaluation of our fiat currency, and the special treatment top corporations receive from government. Issues with prices will arise too, especially with those companies who do not face “sticky prices” and provide goods with inelastic demand (like medical supplies or other stuff people need to purchase). These companies can simply charge more for their goods in response to the minimum wage hike. Those who may defend the sentiment shared by President Obama and Elizabeth Warren (among others) may point to Costco and Starbucks, whom have already called for an increase in the minimum wage. These two Fortune 500 companies reason that more money in the hands of their workers will induce more spending, allowing families to be better off. But if the data Jason Riley offered is accurate, very few people affected by the wage increase will have families to take care of, based on the argument that young people are most impacted by this type of legislation.
Also, nobody bothered to mention that employees of these companies are already paid above minimum wage and the increase would knockout smaller businesses Costco and Starbucks currently compete with in the market. While these sentiments appear noble at first glance, there may also be deeper lying motives that some try to sweep under the rug.
With all of these calls for an increase in the federal minimum wage, we as a society need to step back and look at the costs and benefits this motion would forge. Perhaps raising the minimum wage to $9 would make those below the poverty line better off, but maybe there are better options out there to specifically target that socio-economic group and do so even more efficiently than a minimum wage increase. I am a strong believer in charity and voluntary action among individuals, but for now, it looks like we’ll just have to wait and see what happens in Washington in the future.

Connor Roth is a sophomore Economics major and Constitutional Studies minor and can be contacted at [email protected]
The views expressed in this column are those of the author and not necessarily those of The Observer.