NEW YORK (TheStreet) -- My discussion about the minimum wage is not intended to be a political one, although the issue is before Congress as yesterday Senate Republicans blocked an effort by Democrats to advance a bill to raise the federal minimum wage to $10.10 an hour.
Rather, this is a look at the relationship between the minimum wage and the cost of living. The most important fact is that raising minimum wage increases the cost of living. That is not a redistribution of wealth. If worker A makes 20% more working a minimum-wage job, he will end up spending 20% more for the same things he pays for now.
Since 1990, the accumulative increase in inflation equals 90%. During the same time period, the minimum wage has increased 90%.That is not a coincidence. It's a noble thought to raise minimum wage, but doing so raises costs for job providers.
Think small for a moment. Let's say you're a small business owner. You've been running a restaurant for 10 years. If your servers, dishwashers, line cooks and hosts all get an increase of 20% in wages, what would you do with that?
Simple, you raise your prices to counteract that new cost or you lay off the number of people to make up that difference. It's not greed; it's an essential business practice. In order to survive, you have to cover your costs one way or another.That exact scenario plays out everywhere in life. Costs of living will increase everywhere. Do you think McDonald's (MCD) would maintain a dollar menu if it had to pay all workers $10 an hour? No, it would be cost prohibitive. Proponents of raising the minimum wage have pointed out repeatedly that in 1968 the minimum wage went much further than it does now. That is true. But in 1968 the unemployment rate was about 4%. Most people were working and had the opportunity to move upward and overall wages were up as well. In addition, the tax rate for the very wealthy was much higher. They didn't have the spending power they do now. That, in itself, pushed prices lower. If you want to argue that higher taxes for the wealthy will increase spending power for the lower class, that's an entirely different argument. In the long run, the only thing accomplished by raising minimum wage significantly is inflation. As shown from 1990 to the present, it's an exact correlation. If we really want to focus on 1968's numbers, we should be focused on the unemployment of the time and work to attain 4% unemployment. With the U.S. economy struggling to gain a footing and the jobless rate hovering around 6.5%, wouldn't it be more prudent to avoid legislation that might increase unemployment? We don't want our restaurant owner to lay off people; we want more people in his restaurant because they have jobs. Nobody wants to see people in poverty. The problem with increasing minimum wage is that it doesn't help people climb out of poverty. Only jobs and opportunity to attain better jobs helps people do so.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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