Saturday, October 25, 2014

Politicized Minimum Wage System is a Broken System

After talking to business owners, and minimum wage earners, I have come to the conclusion that the system we use is in need of repair. Most of the time where there is a system, or process, and people are being blamed for it not working, it is the process that needs to be fixed, not the people. That was a lesson I learned when working in industry.

So what is wrong with the Minimum Wage process? The process has been politicized. Instead of the Minimum Wage process being used as a means to assure a proper wage for the lowest paid workers, it is being used as a tool by the various political parties.

One party will tout the virtues of raising the minimum wage while the other warns of the dangers. One side is focused on the issue's side that has the interest of the wage earner, while the other will focus on the side of the businesses interests. All the while, the system remains broken and serves both sides poorly.

The reason I say it serves both sides poorly is this. When a new minimum wage is agreed on by both parties and voted into law, normally the business owner is hit with a large increase over a short time. This large increase normally had is to make up for several years of inflation eating away at the earning power of the wage earner.

The problem for the wage earner comes from having to wait for years before seeing an increase, all the while their earning power is reduced due to the inflation. This causes the wage earner to cut back spending except for the most basic of needs, and even cut back on the basics when the inflation burden gets to heavy. This in return hurts businesses because there is less disposable income for a large portion of the population. The population tightens its belt, so to speak.

To fix the process, the process must be smoothed out and depoliticized. The incentive to use it as a tool for political gain must be removed. Also the rate at which the wage affects the business owner, and wage earner must be smoothed out. The best way of doing this would be to tie the raises in the minimum wage to the Consumer Price Index, or inflation.

Tying the raises in the minimum wage to inflation should be done in a manner similar to the way raises are made in Social Security payments. If there is a raise in inflation in one year of 1.7%, there should be a corresponding raise in the minimum wage of 1.7%. If there is 0% inflation, there should be no raise in the minimum wage for that 0% inflation year.

In the year 2009 the minimum wage was raised to its current rate of $7.25 per hour. If the minimum wage were tied to the inflation rate, the raises would look something like this: (percent of inflation calculated by the Bureau of Labor Statistics http://www.bls.gov/cpi/home.htm)

2009 inflation rate = 2.7% | therefore the minimum wage is increased by 2.7%, or 19 cents per hour bringing the rate up to $7.44 per hour.

2010 inflation rate = 1.5% | therefore the minimum wage is increased by 1.5%, or 11 cents per hour bringing the rate up to $7.55 per hour.

2011 inflation rate = 3.0% | therefore the minimum wage is increased by 3.0%, or 22 cents per hour bringing the rate up to $7.77 per hour.

2012 inflation rate = 1.7% | therefore the minimum wage is increased by 1.7%, or 13 cents per hour bringing the rate up to $7.90 per hour.

2013 inflation rate = 1.5% | therefore the minimum wage is increased by 1.5%, or 11 cents per hour bringing the rate up to $8.02 per hour.

2014 inflation rate = 1.7% | therefore the minimum wage is increased by 1.7%, or 13 cents per hour bringing the rate up to $8.16 per hour.

Tying the raise in the minimum wage yearly raises to the CPI instead of having large raises every several years would smooth out this process for everybody. Business could absorb rises in the minimum wage easier with small yearly incremental increases much easier than large increases hitting them all at once. The wage earner could better afford to have a decent standard of living, without the danger of increases in inflation causing their net spending power to shrink year after year, while they wait for politicians to come to some kind of agreement in a raise.

One other effect of this would be that the wage earner would have less motivation to tighten their spending belts. They would spend their income at these businesses, causing less unemployment.

The idea that the minimum wage should be raised to $10.10 an hour is totally politically motivated. This new wage, in my opinion is proposed to make up for lost time, and to cover future inflation for the next few years. After the cycle is complete, the political parties will resume using the minimum wage as bate in order to garner political gains.

Businesses and wage earners should not have to suffer this broken system. The current politicized system benefits one party or the other, and causes businesses and wage earners to suffer. So rather than blaming the wage earner or the business for this problem, we should focus on the real source of the problem. The broken system.

Please feel free to check all data presented here, and correct me if I have anything incorrect. Also I invite, and encourage/welcome all ideas, and thoughts on this national problem, and the fix I propose here.

Thank you for reading this, and for your support.

James E Parks Jr.
Muncie Indiana