Minimum wage? Focus on the root causes

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I saw a picture pop up on Facebook today. It said:

“Did you know? There is no state in the U.S. where a 40-hour minimum wage work week is enough to afford a two-bedroom apartment.”

So, okay, I guess that’s true. And I guess that’s supposed to convince to me to be in favor of the government raising the minimum wage, but it really doesn’t. There are plenty of good arguments out there against even having a minimum wage. One is that it amounts to having the government put a gun to the head of employers to force them to pay their employees a certain wage. Would an employee ever be justified to walk into his boss’ office, flash a gun, and say, “You’re going to pay me $18 an hour”? Of course not, but removing the steps of the employee voting for politicians who “authorize” the police to enforce such laws via the barrel of a gun and the threat of imprisonment, you can see that is exactly what is happening.

Another common argument is that it removes the bottom rungs of the economic ladder. Those who are unable to justify a certain wage simply will not get hired. By creating and raising the minimum wage, you create a group of people who are unemployable. And then you have to deal with all of the problems that result from that.

Yes, it is true that living on a minimum wage as an adult is far from ideal—it surely would be a tough life to live—so it’s difficult for people emotionally to get past the “I don’t think there should be a minimum wage.” So despite their apparent compassion, what is interesting about this debate is how raising the minimum wage is the only solution that ever seems to be brought. Why don’t any of these people ever ask why working at the minimum wage makes life so difficult? How does anyone ever expect to solve a problem without knowing its causes?

The first thing that comes to mind is taxes. Social Security taxes require that both the employer and employee each pay 6.2% of the wage, combining for 12.4%. Add the Medicare tax for a total of 13.85%. And I didn’t even mention the income tax yet, which happens at the federal, state, and local levels (well, most states and local governments have income taxes). Still, those aren’t the only taxes applying downward pressure on wages. Taxes levied on the businesses themselves keep money away from the people who would put it to better use, such as reinvestment into the company via capital improvements or paying down debt, which allow them the chance to become more profitable.

Now consider all of the businesses that are in existence. Because of all of these taxes, the end products often become more expensive to purchase. For example, state and federal taxes on gasoline average just under half a dollar in the United States. Speaking of driving, there are also fees people are required to pay to own and operate a car, such as registration and inspections.

For many of us, these fees and taxes amount to inconveniences of some degree. But that’s not the case for the people with low incomes. The fewer dollars you have, the more valuable each one becomes. So when that $36 car registration fee comes around every year, I whine and complain about it, but that’s the extent of the pain I feel over it. When a person is struggling to pay rent each month, that $36 means a whole more.

But the biggest culprit in the struggle of the lower class, especially those living on minimum wage, is inflation. For whatever reason, people often don’t get upset about the rampant inflation the United States has been experiencing over the years. Using the most common minimum wage across the states and adjusting for inflation, a wage of $7.25/hour in 1990 would equate to $13.19/hour in 2014. What about 1980? You’d be looking at $20.93/hour. And don’t forget, the government tends to understate the levels of inflation, so it’s very likely to be worse than the numbers we have available show.

So just like the nickel and diming of taxes and fees, inflation hurts those with the least amount of dollars. How anyone can argue that it is a good thing that their dollar will be worth less tomorrow than it is today? But when the Federal Reserve is pumping dollars to the elites, concern for the little guy just isn’t on list of priorities.

There are plenty of other aspects and actions of government that keep the poor and lower income people down, so let’s focus on identifying those causes in an effort to become suspicious and distrustful of the actions of government. While the libertarian arguments against the minimum wage are sound, they unfortunately often leave an opportunity for people to twist them around to accuse you of lacking compassion. Know your audience and understand what will actually get them to think. Show that addressing the root causes would make having a minimum wage a moot point.

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