According to a Boston Herald article, Nancy Pelosi wants to fast-track the minimum wage legislation. Personally, I define myself as a fiscal conservative who is socially liberal. But, is minimum wage an economic issue or a social issue? As a centrist, I generally oppose government regulation and intrusion, but at the same time, I realize that government action is often a necessary course. In the right cases, it works. Government action helps people. So, I’m ambivalent about the minimum wage, but I’m not without opinion…

First and foremost, a huge misconception exists. The minimum wage is not meant to be a living wage! Minimum wage jobs are not careers; they are entry-level jobs. Minimum wage jobs are for students and young people. They should be people’s first jobs. Minimum wage jobs are not and should not be meant to ensure that people can live on them permanently or raise kids with them.

You get a minimum wage job, and you gain experience. You may be getting an education at the same time. Your skills improve, and you get raises and promotions and better jobs. Along the way, your pay and benefits increase. When this doesn’t happen for someone, a completely different problem exists. It doesn’t matter whether you believe the person is lazy or suffers from unfair circumstances. When someone doesn’t improve their skills or obtain an education, that problem is separate from the minimum wage issue. That problem is not the fault of the business-owner, and it is not up the employer to solve it. The fact that some families live off of minimum wage is a different (and much bigger) societal problem!

If I remember economics class correctly, the costs of a minimum wage increase are ultimately borne by both business-owners and consumers. The portion that is borne by consumers comes in the form of increased prices, and increased prices lead to inflation. Worse, some businesses will be forced to lay some workers off or to hire fewer of them. (I personally know of a business-owner who will do just this if the legislation passes.)

While many economists point to detrimental effects, some economists do apparently believe that the net effect is positive. There are some benefits. For one thing, most of the increased wages will go back into the economy as workers spend them. Also, the increased wages may effectively keep some workers out of poverty and ineligible for government programs that would otherwise cost taxpayer money.

You can’t argue that a minimum wage hike won’t at least directly benefit employees holding entry-level jobs. According to the Economic Policy Institute (ECI,) the real value of the minimum wage is at its lowest level since 1955. (The ECI link will lead you to all kinds of interesting information.) The current level of $5.15 per hour has remained unchanged for over nine years, which is the longest period since the minimum wage was established in 1938. We've long since adapted to the last increase.  I don't recall big economic problems from prior increases, so it’s time to increase the minimum wage.

But, let’s be practical. The proposed $7.25 per hour would be a big increase in a very short amount of time, and it would bring us near the all-time high in real dollar terms. It’s hard on both employers and employees when the minimum wage is increased so infrequently and in such big chunks. Let’s finally set up a system to increase the minimum wage gradually and permanently. Perhaps, it should be indexed to inflation. Would the Consumer Price Index be appropriate for this? Maybe. Maybe Not. What would happen when inflation is high, which leads to big increases in wages, which leads to more inflation? We should simply set the minimum wage to increase automatically each year by two percent or maybe by five percent every other year. Congress could make adjustments periodically if they saw fit, but for the most part, we would be done with it.

While we’re being practical, let’s make one other change that would make a minimum wage hike more palatable to business-owners. Our Federal and state governments often dictate that part-time and even temporary workers such as office cleaners be classified as employees even though a business pays them only a few hundred dollars in a year. It’s ridiculous.

You must understand that substantial paperwork and payroll taxes exist when you hire an employee for even one day. Any annual wages under a certain threshold such as $600 or $1,000 should automatically be exempt from registration and payroll taxes if the business-owner chooses. This small change would amount to big time and money savings for business-owners.