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The Myth of the Living Wage

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I think one of the worst lies a politician makes surrounds rhetoric regarding a “living wage”.  Invariably, some politician complains we need to do more for the poor and working class and increase the minimum wage so that they can be paid a living wage.  People who believe this aren’t paying attention or are extremely gullible.

I remember when I was working in 1994.  I remember that I used to get a McDonald’s combo for $3.25 when I was making a $4.25 minimum wage.  Now that minimum wage is about $6.25, a McDonald’s combo is about $5.50.  For those who didn’t catch that:

1994       $4.25 – $3.25 = 1 McDonald’s combo + $1.00 in my pocket

2010       $6.25 – $5.50 = 1 McDonald’s combo + $0.75 in my pocket

I recall when the minimum wage increased a couple of years ago. Prices jumped overnight.  One of the biggest secrets is that when businesses are staffed by minimum wage workers, prices are driven in large part by the minimum wage.  When the minimum wage increases, prices increase in lockstep.  Since poor and working class workers frequent more places staffed by minimum wage workers, they pay higher prices which usually at best means you keep the same amount of money.

However, the dark truth is that you don’t have the same amount of money, because the very politicians who promised a living wage are the ones who enact minimum wage increases without modifying tax structures.  Therefore, more and more poor and working class folks end up in higher tax brackets and consequently they pay more taxes.  The cynic in me believes that when politicians discuss “living wages”, they are seeking only to increase the amount of taxes they collect.

As further injury, minimum wage increases impact unemployment.  Suppose many customers think a McDonald’s combo is worth $3.25, but not worth $5.50.  When the price goes up, fewer people come to McDonalds, so fewer workers are needed and, consequently, more people are out of work.

Now, is it possible to feed a family on $6.25 an hour?  I would find it extremely difficult.  But the answer isn’t to have the government mandate a minimum wage.  It only hurts then ones who are supposed to be helped.  All of us need to find ways to serve others that qualify us to earn the standard of living we want.

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