I don't know where I'm going with this post yet so bear with me if we wander a bit...
I often find it funny to see politicians speak of poverty solely as an economic issue. New legislation could be introduced which could create the 'perfect storm' of economic conditions for lower class people and there still would be poverty. To follow me, you'll have to work under the agreement with me that we are a product of our environment. This could be the topic of a whole other blog post, but basically the argument is that if young Scotty is always told that he will not be successful, that its impossible to be successful, and that no one in his family was ever successful so he can't be successful- Scotty will not be successful, in whatever terms 'successful' may be. This argument is made by several personal development books such as Think and Grow Rich.
The fact that we are, to a significant degree, a product of our environment is the social side to the poverty problem. The power of the 'self-fulfilling prophecy' principle far surmounts any economic conditions that may encourage fiscal growth of the lower class.
Now that I've made it clear that I believe no economic legislation will single handedly solve financial problems of the lower class, I feel more comfortable to present the following economic logic:
Minimum Wage Should Be Eliminated
You've come with me this far and you're pot committed with this blog post so keep following me. Here's what I got: The incremental gain an individual receives from minimum wage is materially less than the incremental increase of goods and services that is brought on because of the additional expense minimum wage causes to businesses.
A hypothetical example: John, who is getting paid minimum wage as a gas station attendant, has less buying power than if his boss didn't have to pay him minimum wage. If John was only paid the market rate for his job, let's say it would be $4/hour, he would have more buying power because of the decrease in the goods and services he buys(milk, bread, gas, cable, cell phone bill, etc). While he would be getting paid less, his cost of living would be even less because business owners will only pay the market rate for labor rather than an institution placed on businesses by the government(minimum wage). The incremental gain an individual receives from minimum wage is materially less than the incremental increase of goods and services that is brought on because of the additional expense minimum wage causes to businesses.
-Counterpoint: The cost of goods and services will not decrease because businesses will take the labor expense savings and pad their bottom line.
-Ahhh, but the beauty of a completely market based economy! Competition will force prices down to their proper points.
-Counterpoint: Not all businesses employ minimum wage people so there is no decrease in the price of goods and services in that instance.
-While, say a consulting firm, may not employ minimum wage people, it's vendors(the payroll company, workers comp company, janitorial service, building owner, website hosting company, insurance company, healthcare provider, computer manufacturer, internet service provider, furniture company, office supply vendor, energy provider, and so on) do employ minimum wage employees. And the consulting firm's vendor's vendors do as well. The expense savings will be passed on, again, due to competition.
Following the common economic logic that all demand is derived demand(meaning all demand, even B2B demand, is derived by the consumer) the lowered price of B2B goods and services will impact the everyday consumer.
Its important to note that we're operating under several assumptions(some that haven't even come to mind yet):
-A significant majority of the lower class have minimum wage jobs or compensation that uses minimum wage as a benchmark.
-The market rate for most minimum wage jobs would be lower than the minimum wage.
I want to make it clear that I don't believe this would solve poverty or a quickly growing income gap in our country. This is far more of a social issue than an economic one, but I do believe, however, that it would give the lower class more purchasing power. As far as the social issue is concerned, I believe that more of a bottom up/grassroots approach is needed to see progress. By this I mean, organizations, people, and a value system that puts growing generations in a positive environment. This could come in the form of organizations such as Big Brothers/Big Sisters or parent outreach programs. This is, again, based off the self fulfilling prophecy principle.
Here's where I get stuck- how do we fund these types of programs while increasing the purchasing power of the lower class via eliminating the minimum wage. Especially when the government is not incentivized to decrease tax revenue(lower taxable wages = lower tax revenue for the gov). Or am I missing something here??
The point of this blog post is not to push my opinion on anyone. It is just an expression of the learning process. In order to never stop learning you have to test different theories-so don't hold me to this. But I need more counterpoints, thoughts, insights in order to further test the theory. You've seen all I got so far.
So please comment and/or pass this on to someone who would interested in this conversation...
