Minimum Wage Hike?

Categories: Economy, Finances, InTheNews
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Published on: 2013.02.14

In President Barack Obama’s State of the Union address Tuesday, he focused partly on generating “a rising, thriving middle class”. Oddly, in that part of his speech, he suggested raising the federal minimum wage to $9 per hour (a 24% increase from the current $7.25 per hour).

In the News: Obama: Minimum Wage Increase Will Boost ‘Rising, Thriving Middle Class’ (Huffington Post)
In the News: Obama’s minimum wage hike to $9 would kill jobs, report says (Washington Times)

I was startled to hear it, since minimum wage raises are generally not designed to help the middle class; rather they help to increase the income of the lowest-wage earners. Note that no one in the “middle class” gets a pay raise when the minimum wage is raised, because by definition you’re not in the middle class if you’re earning minimum wage.

No, these hikes are designed to help the poor. And in some cases, they probably do.

But I earned minimum wage or very close to it most of my adult life, and I’ve never been in favor of minimum wage increases. Here’s my experience: When I’m earning minimum wage, my budget is strict. I can barely afford rent, power, phone, and groceries, much less keeping a car running so I can get to my job and back. Then minimum wage goes up, so all of a sudden I have more money, right? No. Because all the places where I buy things — grocery stores, Wal-Mart, gas stations — they’re all paying their employees minimum wage too. So when the wage went up, those places all raised their prices to compensate for their payroll increase.

So I’m still stuck in the same tight budget, only the numbers are bigger now. A few times, my budget got even tighter because of some unexpected cost increase, such as a sudden spike in oil prices.

So the minimum wage increases never helped me when I was poor. Will they help me now that I’m middle class (thanks to my wife)?

Lets see: Our income won’t rise, but our prices will go up. So no, it won’t help us either.

(Note: I’m not an economist. But it doesn’t take an economist to notice that many actual economists disagree on this issue.)

However, if you are currently earning minimum wage, I have a little advice for you: Try to earn minimum wage in a place where the cost of living is lower. For example, if you’re earning minimum wage in New York City, or L.A., or Seattle… get someone to drop you off in Oklahoma, Arkansas, Missouri, or Texas. Avoid the largest cities; stick to the medium-sized towns.

That’s one big issue I have with the federal minimum wage itself, is that the cost of living varies so dramatically from one state to the next, and from big cities to smaller towns. Obama did say in his speech that he wants to connect the minimum wage to inflation, so that it would automatically rise whenever the cost of living goes up. But it would still be the same level across the country. So two gas station employees in rural Oklahoma could earn minimum wage and support their family, but the same two people in a large Eastern city would go hungry.

Someone else suggested tying the minimum wage to CEO salaries, which are higher than ever.

I don’t think anyone disagrees with Obama when he says: “It is our unfinished task to restore the basic bargain that built this country — the idea that if you work hard and meet your responsibilities, you can get ahead, no matter where you come from, no matter what you look like, or who you love.”

And no one disagrees with Sen. Tammy Baldwin (D-Wis.) when she says: “Anyone who works hard and full time should not be living in poverty”.

But raising the minimum wage isn’t the way to do it.

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