Raising The Minimum Wage Will Make The Middle Class Poorer

Categories: Economy, InTheNews
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Published on: 2013.08.09

You’ve probably heard about the recent strikes by fast-food workers (an example story, from USA Today). They’re asking that the federal minimum wage be more than doubled, from $7.25 per hour to $15 per hour.

My opinion — not as an economist, but as someone who’s worked at minimum wage for many years, through several increases of the minimum wage — is that it’s not a good idea, and won’t help anyone in the long run.

Of course, if you’re working at minimum wage when it increases, you get a raise. That’s a cool feeling; it happened to me several times. Once I had actually already just gotten a raise from my employer, and then minimum wage went up to give me another raise — but then I was making the minimum again.

What happens is this: you get a temporary boost in your own personal budget. For just a little while, it’s easier to buy stuff and the budget isn’t quite so tight. But minimum-wage earning people typically also shop at stores where the employees are earning minimum wage. Those stores raise their prices to account for the increase in their payroll. Usually within weeks, sometimes months, any increase I felt from the increase in minimum wage had dissipated. Sometimes the stores had already raised their prices before the new minimum wage took effect.

And I lived through increases of a few cents, or at most a dollar or two.

This increase from $7.25 to $15 is not in the same class with the ones I knew.

First, I don’t think it will happen. President Barack Obama has asked for an increase to $9 per hour, and others in power are suggesting something like $10.50. That makes more sense.

You have to raise the minimum wage every so often for it to achieve its primary purpose. The purpose of the minimum wage law is to keep a certain sector from being repressed into abject poverty. It’s a good law. Without it, companies would not offer you that much of a salary. Before minimum wage laws, companies would pay you less than you needed to live. So, as the cost of living rises, the minimum wage needs to rise.

(One of Obama’s suggestions a few years ago was to tie the minimum wage automatically to some economic indicators, so Congress wouldn’t have to be petitioned every so often to raise it — it would just raise automatically. I like that idea, but it hasn’t happened yet.)

But no one should be under any illusions that fast-food workers are suddenly going to be able to afford everything they want as if they’re middle class. When prices go up to match the rise in salaries, they’ll find themselves in about the same place they started, while the actual middle class will suffer for it — because our prices will go up too, while our salaries won’t.

And the rich will stay rich.

(Note: I posted a very similar entry about six months ago.)

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