In the State of the Union address Tuesday night President Obama mentioned something that caught my ear.
In his statements Obama brought up the minimum wage, and how we ought to raise it in order to ensure everyone makes a “living wage.”
What a novel idea.
If all it takes to guarantee a living wage is raising the minimum wage then why not just raise it to $100 per hour.
We’d all be rich then, right?
Unfortunately, that’s not how economics works. Over and over this president has proven he, nor his advisors, have any sort of grasp on simple economic theory.
The price of goods and services is directly related to the expense required to produce those goods and services. That’s always been true.
If tomorrow minimum wage went from $7.25 to $9.00 then it will cost businesses an additional $1.75 per hour, per minimum wage employee to produce those goods and services.
That means higher prices. And while it may make politicians feel good, it does nothing to address the real issue.
While minimum wage workers will earn more they’ll also, by default, spend more.
At best it will be a net zero. More than likely employers will realize they can’t pass the entire burden on to their consumers and they’ll lay off workers.
In addition, the number of people earning minimum wage in this country is less than two million. That’s less than one percent of this country’s population. And, the vast majority of that percentage is high school and college aged kids working part-time jobs.
The answer to solving the economic ills of this country is not to increase the cost of doing business. When that happens prices go up and workers get laid off.
Instead, let’s figure out a way to get the roughly 25 million, unemployed and underemployed Americans back to work. That’s almost 10 percent of the population for those keeping score.
In order to achieve that, this administration needs to figure out a way to lower the cost of doing business – not implementing ways that are sure to increase it.