Friday, January 2, 2015

The Dirty Little Secret About Minimum Wage

It is understood that many people in this country do not earn what some may call a "living" wage. To combat this, some believe it is necessary to increase the minimum wage, which will "lift those people out of poverty". One proponent of this is Bill O'Reilly, who says "$10.00 an hour won't hurt anyone." He's wrong - it will hurt everyone! Bill should stick with subjects he knows and comprehends, because he obviously does not understand the intricacies of economics, nor has he taken the time to figure out the unintended consequences.

I am not just talking about the jobs that will be lost. I am talking about how it hurts every person in America without doing so much as a penny's worth of good for the poor.

Here's the dirty little secret that few understand, and fewer will talk about...

Consider, for the sake of an example, the Ramen soup company. (I chose this because many poor people rely heavily on the low cost of Ramen in order to feed their families.)

Assume they have line workers at minimum wage - say, $7.50/hour. They also have line supers at $10.00/hour who oversee the line workers, and those line supers work for line managers who earn $15/hour.

In come the "do-gooders" like O'Reilly, clamoring to raise the minimum wage to $10.00 - a 33.3% raise. So now you have line workers earning the same as their bosses, which just is not right - the bosses have greater responsibilities, so now they, too, need a 33.3% raise. And now THEIR bosses, the managers, need a 33.3% raise, because they need to be paid more than those who work for them.

The result: every employee of the Ramen company has to get a 33.3% raise. There is absolutely no change in the "income disparity". But more important, whereas wages and benefits make up roughly 75% of the costs of running the business, the cost of making and marketing Ramen must now be increased by roughly 25% in order to pay the higher costs. This is because the employer only has two choices for making up the added cost of wages - lay people off, or raise prices. He cannot go into the basement and print money ,like the government can.

So, now poor people are making 33.3% more on their one wage, but the cost of living has increased 25% on every item they buy - not just the Ramen soup. Everything goes up. And though they are now earning more, they are also required to spend even more than their raise will cover. Meanwhile, every person in America is now paying more for everything.

Raising the minimum wage does not add to the economy - it simply adds cost, which in turn harms the economy. In fact, it CANNOT add to the economy because employers cannot print money - they can only transfer it from one place to another.

The short take - you cannot simply raise the minimum wage of low income employees and not expect every other employee in the company to require a similar increase. It's not "just" an extra $2.50/hour for a few people. It's an extra $2.50/hour for EVERY employee in the company. So, pundits like O'Reilly who do not fully understand economics are very, very wrong when they say "It won't break anyone." If a business has 200 employees, raising the minimum wage to $10/hour will increase that company's costs by a whopping $500 for every hour they operate.

Here's a clue, Mr. O'reilly - in real life, there are few things that are as they appear on the surface. I never would have thought Bill O'Reilly to be a "surface" thinker.

Examples of other things that are the opposite of what they appear to be:

PAIN - while it certainly does not feel good, it is a good thing. It tells us when something is wrong, so we can get treatment. Without pain to tell us when to take action, Mankind would have been extinct long ago.

WAR - Man has no superior predator to keep our numbers in check. If not for war and disease, we would have overburdened this planets resources hundreds of years ago, depleting all food and water supplies, bringing about extinction.

ANTI-BACTERIAL SOAP - Most bacteria are good, and necessary for health. Anti-bacterial soap kills more good bacteria than bad. And if you have a septic system that requires bacteria to do its job, flushing anti-bacterial agents can destroy your septic system, costing thousands in repairs.

REGULATIONS - while some are necessary, most are not, and only serve special interests. Regulation is the opposite of freedom - with each new regulation, we, the people lose freedom, and the government gains power OVER the people, which is the opposite of the intent of the founding fathers.

It would certainly be helpful if more people would take the time to THINK about ALL the unintended consequences of things before they advocate for or against them.