After President Obama’s latest State of the Union address, the media lit up. The most controversial thing he said? Not gun control, we have heard that all before. Not the war. What could have been so controversial that it out shined some of the hottest topics in the media today? Minimum Wage.
Why is this so controversial? Why wouldn’t we want to give everyone who makes $7.25 an hour a pay raise to $9.00? The GOP is calling it crazy, but in reality it’s not crazy at all. In fact, it makes complete sense from both a moral and a prudential standpoint.
When we think of poverty, we think of unemployed families. We envision those who have not been able to find work, or have not looked for work; however, if we look at our countries impoverished, they largely consist of working families. A single parent working full time that is earning minimum wage takes home $15,080 a year. That’s $3,400 below the federal poverty line for a family of three1. What’s even more scary is that as we are allowing the market to drive up prices on things like food and health care, it’s also driving up the prices of housing because we have not adjusted wages to levels of inflation we are seeing around the nation. In turn, families are now being forced to spend nearly 60% of their monthly income on housing alone.
We are now living in a time where CEO’s such as John Schnatter, of Papa Johns Pizza, are living in mansions surrounded by a moats, an underground parking garage and a private golf course, yet claim that it would be far too costly to afford to give pay raises to employees. The wage inequality in the United States is out of control and one small proposition to help level the field would be a minimum wage increase, but people like John Schnatter say they cannot afford it. To be clear, no one is saying CEO’s like John Schnatter should not be able to enjoy the fruits of their success; however, when that success comes at the cost of letting employees live below the poverty line, this should be the red flag that we need to re-adjust our priorities. CEO’s everywhere need to remember that it is the workers who helped create the success they enjoy today.
We have an economy that needs to start growing, and just like a tree, the economy can only grow from the bottom up. Trickle down economics has proven to be nothing more than a failure which only benefits the top income earners in our country. While the idea is that if we give the “job creators” money, it will trickle down throughout the economy, that money is not finding its way back into our economy, rather it is being outsourced to places where investment and labor are the cheapest, or simply put away in offshore bank accounts. In contrast, if that money were to be invested in the working and lower class, then the vast majority of it would find its way right back into the economy as people spend that money in their local economies. When local economies prosper, the national economy quickly feels these effects. A raise from $7.25 to $9.00 would not only greatly help families all around the country who are struggling, but also increase aggregate output.
In 1968, workers who fought for a minimum wage were not suffering in poverty; however, in the years since then, workers have began making less and less especially when we take into account inflation and the rising cost of living. The chart below shows our minimum wage as it currently is (in red) and what minimum wage should or would be if it was tied to things such as inflation or productivity2.
The wealthy elite and the republican party have drawn a line in the sand, they do not wish to help the American people at any cost to themselves. Economists do not agree with them about the costs to themselves or the American people, but the opposition is not hearing it. They are happy sitting in their big houses while the very people who work for them go to bed hungry.