How Congress can maximize the minimum wage


As the US Congress moves to increase the minimum wage, we're hearing lots of theories and opinions on the pros and cons.

One side says the increase will help both the economy and low-income workers by increasing the average standard of living. The Economic Policy Institute (EPI) believes the increase will push employers to find more productive ways to do things, and it will stimulate the economy by putting more money in the hands of people who tend to spend their entire paycheck.

Those opposing the increase say it will reduce profits, limit business expansion, increase prices, and result in more low-wage workers being laid off, thus increasing unemployment.

Dozens of more theories and opinions exist but also some facts; such as over the past 10 years the actual purchasing power of the minimum wage (adjusted for inflation) has dropped 20 percent.

Although I believe wages should correspond with job requirements and a 20 percent decrease in buying power needs to be addressed, I think we need to stop and answer one question: What is the purpose of the minimum wage?

The original purpose was to stop the exploitation of workers by unscrupulous employers. But many politicians now include an additional purpose, and that's to create a "living wage."

Yet one blogger who recently supported his family of four on $6 per hour said "You are free for the pursuit of happiness. You are not guaranteed anything. If you have cable TV, multiple TV's, multiple cars, cell phones, cigarettes and on and on, the only thing you 'DESERVE' is to get the bill at the end of each month."

Still, the poor in this country can be genuine victims of bureaucratic hell. I recall a single mother of three who broke away from an abusive, alcoholic husband. The problem? Childcare costs ate up her paycheck and before long she was two weeks from losing her apartment. When she went to seek help from the appropriate government agency, they told her they wouldn't be able to help her until after she had been evicted.

And a single mother of two I know was told that she would have to wait six months before she could even be considered for low-income housing.

Obviously, more is broke with our systems than a minimum wage hike will fix. But if we're trying to help people get a living wage, any change needs to be made carefully.

Why? First off, human nature is human nature. One "pro-increase" argument is that employers will look for more productivity to offset their costs. Poppycock. The path of least resistance is the way of the world, and the increase in labor costs will be passed on to consumers faster than gas stations owners raising their prices when even a rumor of per-barrel price increases waft across the news wires.

Following that, as prices are increased, everyone, companies included, will pay more for their goods. Results? A portion of the increased spending power for low wage earners is automatically neutralized.

I believe that something should be done to replace the lost spending power of low-income families, but if we're going to do anything, there are better ways to go about it than simply increasing the minimum wage.

Perhaps the best, least problematic solution is to increase the Earned Income Tax Credit. Currently, families earning less than $32,000 can qualify for up to $4500 in tax credits depending on certain variables. The program reduces or eliminates taxes for low-income workers, and frequently acts as a wage subsidy, as low-income families can actually receive money (up to $4,536) from the government at tax time.

So why isn't this solution being considered? Politics. More money in one's paycheck makes for great sound bites, plus it secures the loyalty of a specific voting bloc. Also, some politicians don't like drawing attention to the fact that low-income people do not pay taxes and many receive a wage subsidy from the government.

The second-best solution is the way the Senate seems to be going with the bill - Giving tax breaks to employers to offset their increased expenses. Unfortunately the tax breaks suggested are only for small business, which means larger businesses will still be passing along their cost increases.

Still, tax breaks for small businesses are better than nothing. I don't know too many small business owners driving luxury cars, and many struggle to make payroll each week.

Therefore, I see absolutely no need to rush this bill. It's been ten years since the last adjustment, so a week or two more to work everything out is perfectly reasonable. The cries for "a quick, clean bill" should not supersede the need to get this right.

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About The Author

Dan Bobinski
Dan Bobinski

Dan Bobinski is a training specialist, author, and an accomplished keynote speaker. He's been providing management and leadership training to Fortune 500 companies as well as smaller, regional concerns for more than 20 years.