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Minimum Wage, Maximum Headache

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I hate to burst everyone's bubble (not really), but raising minimum wages does absolutely nothing to fix the problem.  Oh sure, it feels good the first paycheck or two when you see that extra $5 a week that the tax man left you, but it won't last long.

Here's the problem: when you raise the minimum wage, then employers have to raise prices or fire people to cover the additional cost.  Thus, the prices of all products across an entire region (covered by the minimum wage) go up, so whatever "extra" money you got from the tiny raise is now balanced out by higher costs.  You rather quickly find yourself back in the same place you were to start with, and in some cases, without a job, as well.

Minimum Wage is one of those feel-good issues that has almost exactly zero benefit to anyone.  Raising it only creates hardship and higher prices over the long run, and does not improve the lives of either employers or employees.  You are far better off negotiating with an employer for better wages and buying only locally produced products, whenever possible, as well as expanding and getting certified in new skills.

The crux of the problem is exported manufacturing.  When almost everything is imported, prices are entirely at the mercy of foreign exchange rates and foreign producers.  They have no incentive to reduce prices, since their prices have nothing to do with the costs of producing export goods.

On the other hand, a local producer has immediate feedback from sales.  If prices are too high, he can immediately adjust to balance costs with revenues, and match prices to the local market, which includes the average wage.

You may or may not know this, but there is a mathematical formula to calculate minimum wage:
Minimum Living Wage = (poverty line) * (household size) / (# workers in household)

If you take a minute to think about this formula, then like all algebraic equations, you will notice that by tinkering with any variable, you can change the entire outcome.

The biggie is the "poverty line."  How does one calculate an absolute minimum amount of money to live?  We need to know tax rates, cost of various goods, utilities, food, and transportation.  This is such a subjective number that folks could argue till the cows come home about where to draw the line.

For instance, someone in a cold climate will have higher heating and clothing costs.  Someone who lives far from their job will have higher transportation costs.  Utilities will cost more in remote locations.  In the US, some states will have higher taxes than others.  Suffice it to say, how do you calculate a one-size-fits-all "poverty line" for a large population?

Despite all these issues involved just in calculating a minimum wage, we are still left with the simple economic fact: when costs go up, prices go up.  Unless the minimum wage is raised every six months or so, there is no way for it to keep pace with the inflation it causes.  Even worse, in times of deflation, which are likely coming soon to a nation near you, who would be willing to lower the minimum wage?  Try explaining that to the great unwashed masses.  According to Wikipedia:
Effective January 1, 2015 there were 29 states with a minimum wage higher than the federal minimum. From 2014 to 2015, nine states increased their minimum wage levels through automatic adjustments, while increases in 11 other states occurred through legislative or ballot changes. The federal minimum wage peaked at about $10 in 1968, as measured in 2014 inflation-adjusted dollars.[1]

Inflation and deflation are tricky bastards.  According to the Inflation Calculator, that 1968 money has been inflated more than 500% by 2014, and we are still waiting to find out the nasty truth about the past two years.

In the end, all a minimum wage does is create false hopes and unreal expectations.  It all sounds so sweet and wonderful, but the subtle if not completely hidden effects are both destructive and self-defeating.

A better solution to this problem is an educated population with good negotiating skills, minimal regulatory interference for entrepreneurs and small business owners, and a solid monetary system that doesn't lose significant value year over year.  Most importantly, stop looking to government to solve the problems of daily life.  No matter what it does, it will screw up everything and make the situation far worse.  Self-reliance and education will always be the best approach to any problem.

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