Mood Disorder

It’s time the federal government exercised divine fiat to increase the pay of minimum wage workers, Rep. Jesse Jackson Jr. said at a Capitol Hill news conference on June 6. “It is time to bail out working people who work hard every day,” he said. “The only way to do that is to raise the minimum wage.”

How much more should companies pay their employees? According to Jackson, a whopping 38 percent! Under his proposal, the minimum wage would jump by $2.75 per hour to $10 per hour. According to the New York Times, Jackson is pushing his agenda from a new angle—“that raising the minimum wage will encourage Americans to spend more and stimulate the struggling economy.”

If only it were so simple.  The last time the federal government raised the minimum wage was in 2009—right in the midst of a recession. This too was sold as a way to “stimulate” the economy. Back then it raised it from $6.55 to $7.25. The Wall Street Journal quoted experts saying that the move would add $5.5 billion to the economy. If simply raising the minimum wage by 70 cents adds $5.5 billion to the economy, why stop there?

Because it doesn’t work. For one thing, money doesn’t appear out of nowhere. It has to come from somewhere. If businesses have to pay their employees more, they will have to increase prices (or go bankrupt)—which means that all those minimum-wage workers at Burger King will be spending their newly enlarged paychecks on higher priced food. But it doesn’t stop there. Wal-Mart employees will be spending their empowered paychecks on higher priced clothes. The oil change at the local garage will cost more. The electronics at Best Buy will mysteriously cost more. Stationery at Staples will inflate. The list goes on.

It doesn’t stop there either. It won’t be just the minimum wage employees that pay more. People already making $10 per hour who do not get a raise will pay more. Businesses that do not have minimum-wage employees that buy products from businesses that do will pay more. The government, which hires contractors, will pay more. Which means taxes will eventually need to go up.

Everyone will pay more. Surprise, surprise—no free lunch. But while everyone is paying more, one group of people will not be paying more.

What group is that, you ask? The poor people who lose their jobs. Many companies that pay minimum wage, pay that because that is what they can afford. Some jobs are only worth paying $7.25 per hour. At $7.25, I might hire someone to rake my lawn. At $10 I might consider letting the leaves blow down the street. Raising the minimum wage is like legislating poor people out of work. And that means that more will need to be paid out in unemployment insurance, and food stamps, and government health care.

Increasing payroll costs is not a way to stimulate the economy. It is, however, a great way to increase unemployment and hurt the low-skilled, low-paid workers that you are trying to help. And it is also a great way to exacerbate the recession.

With America in a recession, now would be the perfect time to raise the minimum wage—if you wanted to hurt the economy.

If this sign is not preaching the truth, I don’t know what is! Let’s say politicians only earned $7.25/hr, the federal minimum wage. They may be a bit more sympathetic to the plights of working families and the under-employed. Following the instructions on this sign may be a good first step to changing things for the better.

Did I hear Jesse Jackson, Jr. to be the first one to offer to work for the minimum wage to set a good example for the rest of the politicians?