Wednesday, August 30, 2006

The Minimum Wage: Don't Fix It Though It's Broken

Thanks again to David of Travel Italy for his insightful post on raising the minimum wage. The task falls on me to now write a counterpoint to such a thorough and intelligent article. I hope I do it justice. Without any further ado, Don’t Fix It Though It’s Broken:

The Minimum Wage: Don’t Fix It Though It’s Broken
by Scottage of Perspectives of a Nomad

There are many people out there who will tell you that we have to raise the minimum wage in order to raise the standard of living of people living in the lower classes. These people are on the right path with the wrong map. They recognize, as I do, the growing disparity between the lower classes and the wealthy, and believe that by increasing the hourly wage of the lower classes, this disparity will decrease.

In reality, the disparity would only grow with such a maneuver. Even more manufacturing jobs will be shipped over seas, as people will only purchase the lower priced foreign goods. The only jobs left in our society will be service jobs, which will leave more people on welfare. And the pride that has always been a trademark for our country will continue to diminish.

Meanwhile, the only real effect will be to raise slightly the income of the poorest few. Most people below the poverty line do not make the minimum wage, in fact, so would be unaffected by this policy change. Instead a more sweeping change is necessary. What type of change would that be, you may ask?

The United States needs to make the shift to a small business economy. By providing incentives for the creation of small businesses, individuals can move from lower paying jobs to a higher income bracket while taking a pride in ownership. A real pride in America would be restored by such a program, and natural incentives would be created to buy American. In all, the result would be a more balanced society.

The Minimum Wage

Let’s start with the minimum wage. I can’t help but agree that the minimum wage today is low; it’s just plain low, no other way around it. But few people are on it. Most people make more money per hour than that wage, even if they only work 20 hours a week or less. People who wind up making the minimum wage are generally people flipping burgers or mopping floors, which are good honest livings and underpaid. But they’re a minority.

Most positions are still well underpaid, and their wages don’t cover the cost of living, but they make an hourly salary above the minimum wage. Rising the minimum wage won’t help these people, and certainly won’t get the people who it affects anywhere close to a reasonable standard of living.

However, this increase will affect many people in the manufacturing industry, but in a negative way. The rising cost to produce a product, any product, will necessarily affect the price. Some will tell you that inflation is only affected by the supply of money in the system, but the rich get richer by always including a specific percentage of the manufacturing cost in their price, a normal profit. If the cost of producing a product goes up, the price goes up even more than the cost of production, as we see in gasoline.

So the price of the product goes up a bit, you may think. But hold on, we are in a global economy, and people can import goods from other countries now cheaper than we can produce them. Yes, many of our manufacturing positions have already been moved over seas, but don’t be fooled, there are many still here. Increasing the minimum wage will only ship more jobs overseas, and decrease the number of jobs available here.

The jobs available here will increasingly be only service positions. And let’s face it, some people just do not want to hold service positions. There are many people I know who really can’t be in service, as they would scare any customer away in seconds. And meanwhile we’re selling foreign goods while the pride in American products dwindles. Truly raising the minimum wage does not help raise the lowest standard of living.

An Alternative Solution

If you want a real solution, we need to think outside the box for a minute. What we really need is to help people own a business, to help them find a way to make money for themselves, and to be pride in their work. But, we need to do this without unduly taxing the lower classes. How can we accomplish this? I have a suggestion, but by all means it is only one suggestion, and there are others that can be tried as well.

There are still thousands of companies in the United States which manufacture, produce, and create. From higher technologies to cars to containers, a tremendous amount is still produced here. But each of these companies creates a variety of components that, when put together, make their product. What if we began providing incentives to these companies to fund companies that would provide components for their goods?

For example, what if the US government went to Boeing, and indicated that, if they invest 2,000,000 in a startup company that produces, say, wing nuts that could be used on their planes, the US will allow them to shelter the same amount from taxes? While at first the government would take a small hit on tax revenue, the overall affect would be a revitalization of our economy. Let’s take a look.

First, Boeing is not producing these wing nuts now. Most small parts used in the creation of airplanes, or in any manufacturing industry in this country, are imported from overseas. But now, despite a cheaper product overseas, Boeing has a vested interest in the success of the small business, and purchases the wing nuts from them. It still costs them less, between lower shipping costs and the tax savings, and now they have tighter control on the quality.

The small business requires employees to create the wing nuts, providing more working hours for our society. They probably diversify, making wing nuts for the auto industry as well, increasing demand for their product, success of their company, profits, and yes, the salaries and taxes they pay. More people work, jobs stay at home, taxes are restored, and people are once again taking pride in American production. All without paying a dime of the taxes from the lower classes.


This is only one solution, but it is a solution that will bring about a real balancing in our society. Unlike raising the minimum wage, it’s a real solution that will make a tangible difference in the lives of the lower classes in this country, and begin to narrow the gap between the haves and have nots here. In short, it’s a program that will bring about the real changes we hope for.

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Posted by Scottage at 11:30 AM / | |