In his State of the Union address, President Obama expressed his goal to raise the minimum wage and close the income inequality gap. It sounds great in principle; however, the truth is it will just cause more problems. A federal minimum wage of $10.10 per hour will have a ripple effect throughout our nation. Small businesses cannot afford to pay all entry level employees $10.10 an hour without raising prices substantially. Ultimately, an increased minimum wage will add insult to the injuries in to our already slow job market.
The left claims that the gap between the rich and the poor has grown at an exponential rate. The left believes that income inequality is destroying America. The right, by contrast, admits that there is a significant gap between the poor and the rich, but our solutions are much different. The left wants to throw more money at federal programs, raise the minimum wage, and lower student loan rates. The right believes that there is value in empowering citizens to work harder.
How do we solve this problem? We first need to understand the myths about income inequality. CNBC recently posted an article discussing three myths about income inequality. The first myth, my favorite, is that income inequality is on the rise. In fact, income inequality has actually dropped to its lowest point since 2007.
The second myth says that helping the poor with government programs and solutions will solve inequality. President Obama’s efforts to close this gap through regulations won’t be nearly enough to create substantial change. The free market is the only thing that will be able to address this gap by providing the nation with more opportunities. Opportunities are created by a company’s innovation and ability to hire more employees, and lower taxes give businesses the additional capital they need to expand. Contrary to President Obama’s efforts, the free market will give more incentives to increase opportunity than the government will.
The third myth is that the rich are taking away opportunity for everyone else. This is simply not true. The rich create opportunities for everyone else: without high earners who own and operate businesses, good jobs would be in short supply. However, ever-increasing levels of government intervention in the market and heavy spending have led to another form of inequality that makes income inequality even worse: income tax inequality. The high taxes on both people and businesses are inhibiting our economic growth. Fox News reports that the top earners are paying more in federal income tax than the bottom 90 percent.
Investment adviser Wayne Rogers says robbing Peter to pay Paul is not the way to fund the government. “It is very popular to say to all the people, ‘I’m going to steal all the money from them and give to you,’ the Robin Hood effect, but it doesn’t make sense,” says Rogers. “It doesn’t work in a free society.” Contrary to popular belief, we can’t overtax the people who create our jobs and expect the market to improve. I would make the argument that no one has ever gotten a job from a poor person. It isn’t reasonable to take a large percentage of someone’s earnings and still expect them to fuel the economy. An increased minimum wage will only add to our stagnation.
Even when we’ve overcome the problem of inhibiting job creation, we still need to encourage people to take the jobs that do become available.
The president is right when he says that minimum wage jobs aren’t meant to provide for a family. That’s because they are usually low skill entry level jobs, and targeted at young people who are building work experience. As a college and high school student, I have worked countless minimum wage jobs. I live in the state of Pennsylvania, where the minimum wage is $7.25 an hour. That wage is definitely not enough to support a family, but through hard and efficient work a new employee will get noticed and earn greater opportunities.
Some people have begun to remind society of the value of hard work. Mike Rowe has a campaign, “Work Hard and Smart,” which is trying to empower students and adults to work hard at their jobs. I have known many people who chose not to go to college and instead entered the workforce. They are working hard, and most importantly, they are debt free. We need to recognize that all work is valuable and stop putting down those who choose not to go to college. I still believe that a good work ethic is a valuable skill.
Income disparity will always be in existence, and increasing the minimum wage won’t shrink that gap. There isn’t a practical or moral way to make sure that everyone makes the same amount of income. Unfortunately, we won’t ever live in a world without poverty. There isn’t a be-all and end-all solution to this problem. The best remedy lies in promoting job growth and greater opportunities for everyone.
An increased minimum wage won’t leave room for an increase in job growth or opportunities. It will just end up as another wrong-headed idea from our current administration.
Nika Anschuetz | Waynesburg University | @nlanschuetz