In the debate over minimum wage, I have long wondered why politicians are so eager to support minimum wage increases. I understand business. An increase in minimum wage is an increase in cost, which hurts the bottom line. On the flip side, I understand labor. Unions and other organizations that represent workers need to fight for more pay and benefits on behalf of those workers.
But why politicians? Why do those who are voted in to represent the voters, which includes both business owners and managers, and workers, so overwhelmingly support increases in minimum wage? Even some politicians who claim to be conservative and on the “right” support minimum wage. It’s always been a mystery to me until I started to do a little math. A worker in California making $10 an hour, who works 40 hours per week, will get a net paycheck of $324.58.** If that worker gets a raise under the minimum wage laws to $15 an hour, and still works 40 hours per week, that worker’s paycheck will rise to $476.18. That’s an increase of $151.60, or about 48%.
What about the government? At $10 per hour, the government will get $106.02 in payroll taxes. However, at $15 per hour, the government will get $169.72. That is an increase of $63.70, or about 60%. So, while the worker increases his or her take home pay by 48% the government increases its take by 60%, far outstripping the increase the worker is getting. Simply put, an increase in minimum wage is a massive financial boon to government. Remember it’s not just those workers who get bumped to minimum wage who will be contributing more. Workers up the line will also get increases because the guy who used to make $15 per hour, is now going to want to make $20 per hour, and the guy who used to make $20 an hour will want to make $25 an hour, and so on up the line. The result? Millions of workers and employers paying more in payroll taxes creating a financial windfall at every level of government.
There are ten logical, rational, and economic reasons why minimum wages are a bad idea. 1) minimum wages limit workers’ personal freedom to sell their labor at the price of their choosing, 2) minimum wages limit business owners’ personal freedom to hire labor at the price they are willing to pay, 3) minimum wages are unfair to people who earn more than the minimum wage, 4) minimum wages cause workers to get laid off, 5) minimum wages increase costs mostly to people who are low income earners, 6) minimum wage increases are temporary fixes and have no long lasting economic effect, 7) minimum wages reduce and eliminate job opportunities for the least skilled in our society, 8) minimum wages are arbitrary 9) Minimum wages ignore the entry level argument and lastly, 10) minimum wages provide for political opportunism in that politicians use the promise of more money to purchase from people who don’t really understand the issue.
Now I understand why politicians so overwhelmingly seem to support minimum wage increases. The politicians really care little about how much the workers make, and they certainly don’t care about all the workers whose jobs will be lost as employers move to reduce costs, and they certainly understand increasing minimum wage is only a temporary fix (if it were not, you wouldn’t have to continue increasing it).
I always thought the only logical argument for minimum wage is that increasing the minimum wage makes one feel good. But now, through a little math, I’ve really figured out why politicians love the minimum wage. It’s a great way to fill up the governments’ bank accounts and provide more money for those politicians to use buying votes, implementing “feel good” projects that accomplish nothing and wasting taxpayer money on boondoggles. I guess if I were a politician, I’d be supporting minimum wage too. Imagine the squawk if the government wanted to increase taxes by 62%. But under the guise of doing what’s “fair” and feels good, that’s exactly what they are doing. And everyone one of them knows it.
** Note: Calculations made using https://www.paycheckcity.com August 2021