Increasing the minimum wage by nearly three dollars per hour sounds like a great solution to Indiana’s increasing number of people at or below the poverty level.
We have an abundance of workers who are grinding away at some demanding jobs and are getting paid in such a manner where they can barely make ends meet.
So let’s reward those people with a little more money to lessen the burden. Does that really solve the problem, though?
If we fail to observe the total economic effects of an increased wage, it would be simple to answer our question with a resounding yes.
Looking just a bit closer, however, will reveal that we are doing more harm than good.
Let us first look at the industries that are most affected by an increased minimum wage.
These would be gas stations, grocery stores, food chains, etc. In each of these examples, the cost of goods sold stand at a level that makes for a minimum profit margin by which management level employees are rewarded.
Employees are most companies’ single greatest expense, and now we’re looking at increasing that expense by 25 to 50 percent, depending on the company. As profits are dwindled drastically, who will eventually pay those costs?
The consumers will.
All of a sudden, that extra two to three bucks an hour seems a whole lot less when your grocery bill increased 60 percent.
Companies are not stupid, though. Would they really alienate their loyal customers by jumping prices? History says yes.
Just see the fuel surcharges you saw on all of your bills in the last decade for your proof.
Let us assume, for just a moment, that companies didn’t elect to go that route.
In order to operate and maintain profitability, they still have to figure out a way to control the new costs. That control will be job elimination.
In fact, job elimination is already one of the most popular cost-cutting practices.
Just look around for the signs that this is coming. A popular practice at some restaurants is to allow you to order from a touch screen.
It’s already being tested in some west coast markets for places as entry level as McDonald’s. The problem will continue to escalate.
Look back at Henry Ford’s company nearly a century ago. He was one of the first in the manufacturing era to implement a massive scale pay increase of his employees.
He did so because his company was making a product his employees couldn’t even afford. Look at the price of a new vehicle now.
Even a low-end brand new vehicle will cost the consumer in excess of $25,000. A monthly payment in excess of $500 per month is one that is difficult, or even impossible, to stomach by a good percentage of modern consumers.
While many factors go into determining the price of a car, it all started by jumping the pay scale and pushing that cost to the consumer.
The next issue pertains to those who aren’t currently at minimum wage but would be after an increase. Those folks aren’t likely to see much or any increase in take-home pay while still suffering the same increase in goods as everyone else.
Those who live on a strict, fixed budget will be in a similar predicament, perhaps making the simple act of paying all of their bills impossible.
If increasing the minimum wage is not the answer, then what is? The truth is there isn’t one simple answer.
Cost control, better budgeting and more education are steps in the right direction, but they can’t stand alone. Raising the minimum wage is a step, but is it a step in the wrong direction?
Jason Reed is the national director for financial aid for MedTech College. He lives in Greenfield.