The issue of minimum wage: How important is this? Long term effects? Media circus?

September 3rd, 2013

I’ve seen quite a bit lately about the need to increase the minimum wage.

I remember many years ago we talked about this in an economics or statistics class (I can’t remember which).  If everyone who makes minimum wage gets an increase, let’s say double (which is what some people are politicking for), what will happen?

Minimum wage related to price of goods we buy

In short, prices of everything should go up, which kind of neutralizes the raise for the individual.  In other words, their purchasing power doesn’t go up as much as they thought it would.

An example: Let’s say I make $7 an hour, and my boss doubles my pay to $14.   As long as prices don’t change, I just got seven more dollars of purchasing power, right?  (I’m not an economist or statistician, so if I’m wrong on that, take it at the surface level)

The problem is that it now costs my boss an additional seven dollars to keep me employed.  Where does that money come from?

It could come from the company’s profits, but most companies will not lower their profits for this.  They will find a way to PASS THE COST ON, and keep the profit margin they need to make to stay in business (or, to keep the margin that makes it worth it to be in business).  Who do they pass it on to?  The customer, of course.

Let’s say the employer is a hamburger joint, and they have a dollar menu.  Before I got my hourly wage doubled, I could have gotten seven hamburgers (ignoring deductions, taxes, withholdings from my paycheck, and ignoring the tax when I buy the burgers).

After the raise, the employer doubled the price of the dollar menu burgers to $2.  Instead of being able to buy fourteen  burgers, I can still only buy seven, same as before. My purchasing power is unchanged, even though I am getting twice as much money.

If this happens at a national level it’s going to hurt a lot of people, from minimum wage people to companies to people making more than minimum wage (who now have seen prices increase).  The purchasing power of our dollar goes DOWN.

Enter yellow journalism and the ridiculous media circus

Unfortunately, we consume information from media, including blogs, and take it all as truth.  Media is not there to present truth.  Media is there to… wait for it… MAKE MONEY!

You realize that, right?  The media exists to SELL ADS (commercials, etc.).  That is IT.

But we are, well, dumb.  And we tend to believe what is put on the TV and in newspapers and magazines, just the way they present it to us.  The way they are handling this issue of the horrid injustice of minimum wage is so slanted.  What is the message the producers of this interview want you to take home?

This is interesting because when you watch this, it tugs at your heart strings and you feel sorry for Terrance.  But the bigger question goes to what minimum wage should be.  Is he ENTITLED to make more money?  If so, how is that justified?  Does it seem like the media is stirring this pot?

Should the Government require companies to increase pay to workers?  Will that set off a domino effect similar to what we’re seeing with Obamacare, where employers have to make “adjustments” just to stay in business.

Terrence says “it needs to be changed,” but what is IT?  Is IT minimum wage, or is IT what he does for a living?

What entitlement should “we the people” have when it comes to money and jobs?

There are a lot of people who don’t like their situation and they change it.  Whether that means going to school, either academic (4+ years) or votech (2ish years, and ready to enter a trade, like welding), should we (the US Federal Govt) give Terrence more money, or should we point him in directions where he can make more money, and then leave it to him to go after it?

One problem with the fast-food-workers-don’t-make-enough-money argument is that fast food jobs shouldn’t be considered career jobs.  If you want to make more money, get into a different career path.  Or start your own business.

Are we entitled to better jobs?  Are we entitled to more pay?  Should the government force companies to give that to us?

Or, are we empowered to go get it on our own?

Here’s another video, showing how McDonald’s helps their employees set up a budget… but the budget is unrealistic.  It shows that if you work forty hours a week you would have to make almost $13 an hour, not the typical McDonald’s wage.

The question then is, is it McDonald’s responsibility to pay you that wage?

I guarantee that if they paid that to line workers in the restaurants, prices of food would go up, maybe to the point where we can’t afford to eat there.  Then… jobs will get cut… and those demanding raises won’t even have a job.

Where do you fall on this minimum wage thing? Should we increase the minimum wage so that it is more of a living wage?

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2 Responses to “The issue of minimum wage: How important is this? Long term effects? Media circus?”

  1. This is a very superficial treatment of a complex question, and less than objective when the word “entitlement” is thrown in.

    One of the impacts of paying workers less than a living wage is that they leave for better jobs and the company spends more money hiring and training their replacements, generally estimated to be equal to 1.5 times the wage for the position. In economic terms, the employer should be willing to pay 1.5 times the salary in order to avoid the turn-over.

    We have some successful models of companies that pay a living wage and do not suffer in the marketplace. Consider Costco, for example. Unlike Walmart, Costco pays well and provides benefits AND maintains their price structure and profitability.

    As I said, the minimum wage issue is very complex and should be considered from its entirety, not a superficial glance.

  2. Jason Alba says:

    I agree that this post is a superficial treatment… it is not meant to be a final paper or book on it.

    The problem is, the media is taking a strong position that plays at the heart strings and doesn’t factor in side effects… kind of like how politicians are making emotional decisions about Syria right now. Don’t you think the media is treating the Syria thing way different than if Bush would have been the president?

    And we sit back and soak it all in, believing what comes across our screens.

    My point of the post is to start a different conversation, not based on ad sales for yellow journalism.

    Why not talk about “entitlement?” That is a message that I’m continually hearing – “we deserve more money!” Why? What justifies that? It sounds like entitlement to me.

    Costco is a phenomenal example of a company paying more. They also have a different type of product. Costco is higher quality, higher price, and I’m guessing higher margin. Wal-Mart has chosen a different model… and those two models affect who they can hire, how much to pay, etc.

    Maybe Wal-Mart CAN pay a lot more than it does… but they don’t and that is their business decision. Is it the proper role of a federal or state government to make a business pay more to employees? Another side of that coin: Is it the proper role of a federal or state government to say how much Wal-Mart can (or will) charge for what they sell?

    What if the feds came to you, as a career coach, and said “you know, your clients are unemployed, and they really don’t have any money. We know this because their unemployment check is only $300 a week. So, you have to offer your services to them for four dollars an hour.”

    I use this dramatic example to illustrate my point. If you can’t do business for $4/hour, then you stop offering the service, close your business, etc.

    Wal-Mart, McDonald’s, and the other companies who pay minimum wage… if they are forced to pay more, aside from the purchasing power I talked about above, will have lower margins. And the owners can decide whether they makes sense for them or not. If it does not make sense it will have a profound ripple effect, much like we are seeing with the not-even-implemented obamacare debacle.

    My purpose of the post was to start a conversation, which we did, even if it is superficial.

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