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Raising questions about minimum wage

On February 13, 2014

It always seems as if some politician is preaching the pitiful pittance that is minimum wage.

Just last month, in fact, President Obama mentioned raising minimum wage in the State of the Union Address.

While this is meant to be a direct strike at income inequality, implementation will prove the theory to be less than satisfactory.

Every politician has the primary goal of telling the constituency exactly what it wants to hear. The argument for a higher minimum wage is an outstanding example.

The politician paints a painful picture of poverty that may be solved with progressive policy. By tugging at the heartstrings of voters, politicians can make approval ratings increase when legislation aimed at helping the poor is introduced.

Income inequality is a tricky problem in the United States so the solution should be very well thought out.

When the common person thinks of the best way to help the poor, the first solution that comes to mind is “Why don’t we simply pay them more?”

This idea is strengthened when someone who has fallen on hard times finds himself in front of the media’s camera and tells the world that he can’t feed his children making only $7 an hour.

While the concept of raising minimum wage is largely an emotional argument the economics leave much to be desired.

Raising the minimum wage fails to make the poor equitable. Most of those currently making minimum wage are secondary earners, teenagers or spouses of primary earners in a middle class home.

Raising the minimum wage would help this group of people more than it would help the working poor.

While a job may not be harder to get with higher wages, hours will be. Whenan employee starts costing a company more than he or she makes the company, he gets sent home.

For example, Dairy Queen may have wanted the fry cook to work more but business was too slow to pay him $7 for that hour. Only the busiest shops could afford to keep fully staffed.

While the notion of raising minimum wage is noble idea it is not the most effective way to combat income inequality.

About a year ago, Christina D. Romer, former chairwoman of Obama’s Council of Economic Advisers, wrote an editorial in The New York Times explaining the complications of raising the minimum wage.

In the article she explains economists hate inequality just like everyone else, but raising minimum wage isn’t an effective solution. What she suggested is groundbreaking.

Economically, increasing the earned income tax credit the working poor receive is a much better response to income inequality.

The earned income tax credit is essentially a negative income tax; if your income is low enough, the IRS will send you a check at tax time.

The earned income tax credit is very specific to the poor as only those below the poverty line are eligible for the credit.

This would insure the government infusion of money goes to where it can do the most good, where the propensity to consume is greatest.

Money given to the poor exchanges hands more than money given to the rich, strengthening the economy.

While raising minimum wage is not a very effective solution to inequality, it certainly gets a lot of attention in the media.

Although better options are available politicians continue to return to the minimum wage argument.

If Washington plans to meddle in the affairs of the economy, shouldn’t it at least try to solve the problem in the most effective way possible?

 

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