We are being innundated with bad economic news: Budget problems, tax problems, and reportedly a historically high poverty rate in our country. On the budget side, some are claiming that we simply do not get enough taxes from the wealthy and if only we increased their taxes, everything would be okay. On the tax front, we are being told that the current tax system is really the problem and that perhaps a revamp of the tax code to a single tax rate is in order. And finally we are told that the problem is the wages and that we need to focus on changes to eliminate poverty.
So why isn't the obvious solution raising the minimum wage to $250,000 per year? Overnight everyone in America is wealthy and by default we go to a single tax rate tax system and everyone pays there fair share. Budget Balanced. Poverty Eliminated. Tax Fairness Achieved. Problem Solved. Right? ...
Right now, you are probably thinking, "What an idiot! There is no way that could work." And you are right. If we passed a law like that, we would cause huge economic turmoil. Overnight, businesses would have to either raise prices outrageously in order to pay their employees or perhaps fire as many people as possible or declare bankruptcy. We could expect hyperinflation, hyper unemployment or perhaps both. AND it is also very unlikely to improve the wealth distribution in America in a positive way at all.
It is unclear what having a minimum wage accomplishes. Normally, the legal minimum wage actually trails the market determined minimum wage. So when a new minimum wage is set there is normally very little effect seen. However, it is a different story if the legally required minimum wage exceeds the market OR if there is a downturn in the economy. In those cases, we can expect to see the same mechanisms in play as our extreme example above, meaning increases in inflation and / or unemployment.
I don't claim to have all of the answers and I understand that in talking about those making minimum wage, we are generally talking about the most vulnerable in our society. Still, one has to wonder how much we are helping this most vulnerable group if we are enacting laws that increase the costs of goods and services for them and decreases the number of jobs available to them.
With the US going on nearly 3 years of unemployment rates near 10%, I wonder what would happen if the minimum wage was decreased instead of increased. People could still decide not to work for that wage. But perhaps there would be some people who have been unable to find work who would welcome having a job.
Politically, I do not think that this can happen. Minimum wage laws tend to be politically popular. The public views them as their legislators looking out for them. Legislators also seem to like them. And there is at least the perception that in having a minimum wage, we have also created a floor for a minimum income. In reality that is not the case.
Just my opinion. Have a great day.
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
BTW - If you would like an opinion or some help regarding real estate, I would love to help. I specialize in Commercial Real Estate and work with Landlords, Tenants, Buyers, Sellers and Investors. I handle Office, Industrial, Land, Investment and Retail Properties. I am licensed in KY and IN.
Also, I am sure that my managing broker would appreciate me clarifying that the views expressed here are my own and are not necessarily shared by Commonwealth Commercial Real Estate, its brokers, agents, or employees (other than me, of course.) If you would like, you are free to make a comment and different opinions are welcome. What is not welcome is inappropriate remarks and I will exercise my right to delete any content which I find objectionable.
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