Minimum Wage Increases: do they help?

Today across the nation minimum wage increases from $6.55 to $7.25. Before taxes that can add another $28 per week into your paycheck of low income families or about $1,450 per year. That is a nice 10% increase in their wages.

As a Christian, I believe that it is the obligation of the Christian community to care for their poor and widows. The Bible gives us many examples of ways the poor were to be cared for in both the Old Testament and the New. There were commands to leave some of the harvest on the ground for the poor to glean. There was the practice of releasing the poor from their debts every 7 years and the year of Jubilee where their possessions were restored every 50 years.

As a budget coach and a volunteer with Crown Financial Ministries, I have great compassion for the financial struggles. I believe the challenges are greater now than they were even several years ago. More and more constraints to the budget degrade the American lifestyle and even force families into financial instability.

Studies show that families need hourly wages of $12 - $16 per hour (depending on the number in your family and where you live) just to live independently. In my ministry work and now in my profession, my goal is to help families get the education and skills they need to sustain them. As God's people we should invest our efforts in pleasing Him by using our skills and our wealth wisely I hope to encourage families to do just that. I recognize that there are circumstances in which individuals are not able to overcome their poverty and that is where the church needs to be much more active than it has been. That will be a topic for another blog.

Raising minimum wage has some significant negative consequences that dramatically affect the welfare of the low income worker:

1. Employers pass their increased costs on as increased prices for product. Let's say you work for a retailer that pays minimum wage. They sell low cost products to families like you. Since minimum wage is increased 10%, the employer needs to pass on that cost increase to its customers. This has a compounding effect as the product they purchase from wholesalers is also now increased because their employees got an increase in salary. The wholesalers also had to pay more for their product because the manufacturers had an increase. The manufacturers had to pay more for their parts because their suppliers had an increase. You can see that the increases grow. 
2. Cost increases do not stop at the minimum wage worker: The employer must consider the performance and seniority increases that other workers have received over time as well in order to maintain an incentive to employees to strive to move up the wage scale through hard work and diligence. If you were making $7.25 because of your hard work prior to the increase, is it fair to now bring all employees up to your wage scale and not keep your incentive in place? The employer must give wage increases across the wage scale to keep the incentives in place so their costs don't just increase for the minimum wage workers but for all costs.
3. New incentives exist to use foreign inputs: If all the manufacturers have a 10% increase in the cost of materials and their wages increased by 10%, they need to sell their products now for even more than 10% perhaps up to 20% more. As a wholesaler who has to pay for this increase, I am now incentivized to look to a less costly product to fill that need. Where can I look? Overseas. Because we are more and more a global economy, foreign products are more easily exchanged for those that were American made. That means the supply inputs and the manufacturing work goes to foreign workers and more Americans are out of work; Americans who used to work for low wages now find they are unable to find work at any price.
4. Quality of products are degraded: In order to remain competitive, your retailer may be forced to purchase lesser quality products in order to keep business. That means that the things you purchase every day now may have less value but they cost the same. Everyone's quality of life becomes degraded as a result. Quality products are less affordable, so merchants who sell higher quality products may have to either choose to degrade their inventory or close their doors.
5. Products purchased by low income workers are more expensive: The low income worker may find that they are not any better off than they were in the first place because they need to now pay more for their burger, groceries, household goods, services, and utilities. If they received a 10% increase, but the cost of products go up in price by 10% they are actually worse off, because of the taxes that are paid on top of the purchase are greater and further reduce the amount of money in the low income worker's pocket.

Raising minimum wage is meant to help the low income worker, but it cannot serve it's purpose. The working poor are not helped by minimum wage increases. The only way they are helped is to improve their education and skills so they can qualify for higher paying positions. Minimum wage should be a beginning point for a wage earner not the level at which they exist long term. The American dream of opportunity for all people was based on that concept.

I believe that Christians need to become more involved in the lives of the poor and the struggling widows. We need to support them in their time of need and help them to get more opportunity. Churches can develop better outreach in their neighborhoods if they are extending the love of Christ in practical ways that the unbelieving community around them can see. Consider how you can put Christ's love in action today. If you want to find out how your church can become more involved reaching the needs of your members and beginning an outreach to the community, feel free to contact me at www.eternal-values.com.