Minimum Wage Hike to Stall Economy… Some More

By Tim Grubbs
July 24, 2008
Business

When Democrats pushed to pass an increase in the federal minimum wage in 2007, the media was all aglow at the boon it would be for the American economy, from the ground floor up. Today, the media is reporting the downside as most most conservatives predicted they would. However, they are limiting the scope of their report to the impact on small business, saying things like, “The bad news: Higher gas and food prices are swallowing it up, and some small businesses will pass the cost of the wage hike to consumers.”

Sure, the widest base of people who will directly see the effects of a minimum wage increase are the people making and paying minimum wage. However, these reporters who apparently passed Economics 101 by a hair don’t even begin to touch on the real effects a minimum wage rate hike has on the American economy.

The media doesn’t report on the impact the “minimum” wage has on the value of the U.S. dollar. As economists across the globe are worrying about the faltering dollar in schemes of oil prices and other global economies, here in the U.S. we just increased the base rate of the dollar, which causes the base value of the dollar to decrease by 12%. Interestingly, one of the figures quoted in today’s reference article is this: “David Heath, owner of Tiki Tan in College Station, Texas, said the increase will force him to raise prices for his monthly tanning services by about 12 percent.” Heath pays his employees just above minimum wage.

Naturally, small businesses with scraping profit margins are going to pass the cost to their customers. Yet, the media doesn’t report on the effects on large corporations - such as those who have unions. Many unions across the country base their effective members’ salaries on the minimum wage - as the minimum wage increases, so does the pay to these workers. Are “big” businesses immune from the minimum wage cutting into profit margins? Of course not. Do these businesses pass on the cost of the increase to consumers? Of course they do. Just because the numbers are bigger, doesn’t mean the profit margins are any greater.

Will the increased minimum wage have any effect on the mortgage crisis in the U.S.? This isn’t likely, since most people working for minimum wage can’t afford the cost of a traditional mortgage anyway.

Will increasing the minimum wage have any effect on the rising cost of health care? Again, unlikely, since most employees making minimum wage are likely not to have health insurance in the first place. Based on a 40-hour work week, the extra $112 dollars (about $95 after taxes) earned each month will have little impact on their ability to pay for health-care such as emergency services or maternity services, which can easily add up to more than $10,000 for an average visit.

Will an increased minimum wage offset the cost of higher fuel prices? Consider that the 12% increase in the federal minimum wage is compared with the 89% increase in the average price of fuel in the U.S. over the last 18 months.

Securities speculators? Give me a break.

How about food? Nope. Corn is up nearly 60%, wheat is up nearly 35%, and sugar is up 75%… since 2004.

So, in the face of this already slow economy, what’s the best thing we can do? Make businesses all across the country start clamping down on their profit margins some more, increasing the prices of goods and services some more, and - best of all - boost the overall amount of tax revenue being fed into the federal government while disproportionately increasing the overall citizen burden on tax dollars. Medicare? Medicaid?

Thanks a lot, Democrats.