We recently posed a question to our readers which was intended to be quite straightforward; the responses we received proved to be anything but! Our question was this: “If you believe in trickle-down economics, then shouldn’t you support raising the minimum wage?”
Our thinking in posing the question was that the concept of supply side economics as espoused by Ronald Reagan and commonly referred to as “trickle-down economics” primarily calls for reducing or eliminating taxes on corporations and easing their regulatory burden. As this economic theory goes, by taking such actions, it is expected that the money saved would be re-invested in the economy and, thereby, benefit all with at least some of that new prosperity finding its way into the households of the working class.
With the rise of income inequality over the last thirty to thirty-five years resulting in such statistics as the top 400 wealthiest Americans accounting for as much wealth as the bottom 155 million Americans, it is safe to say that is clearly not happening. Therefore, and again as straightforward as we can make it, wouldn’t raising the minimum wage serve as an effective mechanism for breaking the logjam of profits at the top of the income scale and help some of that wealth find its way into the pockets of the workers as, apparently, expected by Ronald Reagan and his economic advisor, David Stockman, who readily used the term “trickle down”?
Keep in mind that raising the minimum wage is not a new or untried practice. Administrations, both Republican and Democrat, have raised the minimum wage over the years without any of the devastating effects predicted by some of today’s prognosticators. As a matter of fact, Henry Ford applied the concept to his own workers because he recognized that increasing wages would enable them to purchase the very automobiles that were being produced in his factory and, thereby, increase his own wealth. More recently, COSTCO took the same approach recognizing that increasing the purchasing power of its employees would likely see much of that money spent in, of all places…COSTCO.
In reviewing the many comments we received in response to our inquiry, we found that some responded as if there currently is no minimum wage, others focused on the concept of the minimum wage being equivalent to a tax, still others on portraying the minimum wage as a handout to the poor rather than to take the burden off of the taxpayers whose taxes pay for the food stamps required to keep many working families above the poverty line. What we found to be most revealing in posing this question is how challenging it is, at times, to stay on topic and answer the actual question being asked rather than one that may be more in line with what one hoped to have been asked.
Specifically, we found some responders focused on the minimum wage as being intended only as an entry level wage. In response to those comments, we acknowledge that the minimum wage is, indeed, intended to be an entry level wage with the current federal minimum wage standing at $7.25 an hour. Twenty-one states and the District t of Columbia have raised their current minimum wage above the federal minimum wage. The real problem comes into play when the head of a household, because of the nature of the work, is also limited to this entry level wage. Is it time for a long overdue increase?
Some responders raised the issue about the disparity between wages at the lower pay levels and the higher corporate pay levels. In response to those comments, it is worth noting that In 1979 a CEO made, on average, approximately 45 times the average worker of the company. Today, the CEO averages 540 times the pay of the worker. It is unlikely that today’s CEO works approximately 12 times more than his or her counterpart in 1979. This is the logjam of wealth that is not trickling down and is the basis of our original question. Other responders were concerned with the differences in challenges between small businesses and larger corporations. To them, we say clearly there is a difference between a small business with slim profit margins and companies like Papa John’s which resists paying a living wage to its employees. Maybe, just maybe, then, current tax breaks for large corporations would be put to better use going to small businesses to help them grow. Something to consider.
Another issue raised by some responders concerned whether the government should have the authority to insert itself in the setting of employee salaries. It should be remembered that the government inherently has the authority to enact laws to protect its citizens from abuse. That is why airlines have to receive approval for certain fare hikes. Government also serves to protect citizens from unfair practices like child labor, health codes, polluting of our waters, and usurious loans as just a few examples. How well these functions are performed is debatable. Regardless, the question posed is still on the table regarding whether raising the minimum wage is a mechanism for getting the money at the top to find its way down to the workers.
With the issue of considering the minimum wage just another tax on employers, even though the original question had nothing to do with this issue, suffice it to say that taxes are how a government pays for the services it provides to its citizens. It is easy to say no taxes, but it is usually the case that those who scream the loudest are usually the ones who scream even louder when they are no longer receiving their government services.
Lastly, one commenter mentioned Wal-Mart’s recent decision to raise the wages of its employees from $9.00 to $10.00 an hour, due to the difficulty in finding more qualified employees, as an example of supply and demand taking effect without the need for government intervention. Clearly, this is how the system should work. However, like any system, safeguards are often necessary. The minimum wage is such a safeguard. Accordingly, our original question still remains: Does raising the minimum wage, even as in the Wal-Mart case when it is done voluntarily by the company, serve as a mechanism for getting the logjam of company profits at the top of an organization to trickle down to the workers of that organization and into the overall economy due to the increased purchasing power of the workforce?
We still await the answer to that question from our readers but are even more interested in hearing a response from some of our legislators who, after thirty failed years, still espouse trickle-down yet oppose raising the minimum wage as a means of getting the trickle to flow.