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Income fairness v. economic reality

April 30, 2014

The Congressional Budget Office (CBO) has estimated that raising the minimum wage to $ 10.10 an hour within 30 months of the bill’s passage and indexing it to inflation would result in higher incomes for 16.5 million workers, but would cost 500,000 jobs.

Perhaps a more telling figure is the buying power of those dollars. In a push to have Senator Tom Harkin’s (D-Iowa) minimum wage bill considered in the Senate, Democrats are citing a statistic that notes that $1.60 when adjusted for inflation it would buy $10.68 worth of goods or services today. The inflation calculator on states that the figure is $11.00 and reports that over the period 1968-2014, the average inflation rate was 4.28 percent. In simple terms, anything you buy today will cost ten times more in 40-50 years.

Give or take a few cents, that indicates that by using the logic of what a dollar will buy to justify the increase in the minimum wage, the true target figure should be $11.22 an hour on June 1, 2017. That means that by the time the new rate of $10.10 is fully  phased in, it will already be $1.12 out of alignment by the time the law is in full effect. Of course inflation is currently not 4.28 percent, at least by the government’s measurements, but you get the idea.

Since the bill would require the rate to be indexed to inflation, you could reasonably expect that the year after the wage hit the $10.10 mark it could take another pretty substantial raise in 2018 to offset inflation, particularly when you factor in the cost of Obamacare and the minimum wage hike by itself.

No one that has ever tried to get by on the minimum wage thinks it meets the basic needs of the worker, even if that worker is single. And it is an undeniable fact that even if it is just a stepping stone to a better paying job, you still have to live on it for a few months or years while you acquire the education and skill to move up the income ladder. Add student debt repayment to the list of necessities , and it becomes even more out of alignment with the true cost of living.

Is the problem the wages, or the cost of what those wages will buy?

Nothing exists in a vacuum. Any upward input cost pressure will manifest itself in two ways. First, everything you buy will cost more. That’s the simple definition of inflation. Future dollars are simply not going to buy the same amount of goods they would today.

Second, it will result in not just the half-million job losses predicted by the CBO, but in the lowering of wage progression for heretofore higher paid workers, if the hopes of the progressive left are realized. That’s what  leveling the playing field in terms of economic or income fairness means.

Follow that logic to it’s inevitable end, and you have everyone working for the minimum wage or close to it. Either that, or by 2068 a loaf of bread will cost $35.00. Maybe more, since in 1968 the cost of a loaf of name-brand bread was about 22 cents versus the $3.50-plus today. The cost of a gallon of regular gas in 1968 was about 34 cents, and today it hovers right around the $3.50 mark. The cost of a half-ton pickup was about $4,400 and today it hovers around $40 grand after rebates.

Somehow, this minimum wage thing  just doesn’t seem to be the path to prosperity. Somebody has to pay for all this fairness, and that somebody is you. 

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