A portion of President Barack Obama’s State of the Union speech discussed the creation of an economic climate that encourages businesses to open up shop in the United States and invest earned capital locally rather than overseas. The president then addressed several policies that would accomplish precisely the opposite.
Obama proposed raising the federal minimum wage from $7.25 to $9.00 an hour, arguing that it would raise the incomes of millions of families. “It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead. For businesses across the country, it would mean customers with more money in their pockets,” he said.
The problem? It’s a lie. Entry level economics courses teach the true effect of minimum wages. Minimum wage jobs are filled by low skilled labor, many of whom are in high school and college and learning the skills necessary to succeed in the United States…skills such as working with others, taking direction from managers, being responsible with your authority and privileges. Minimum wage jobs are teaching jobs. When governments raise the minimum wage, businesses respond by slashing opportunities to these jobs, or increasing the price on products and services – or both.
What incentive do businesses have paying unskilled laborers more money? I was asked a question recently: “How do you expect a person to make a living off of minimum wage?” My answer is simple: I don’t. Low skill jobs are not designed to support entire families. Ask yourself a simple question – why would somebody work 60-hour weeks at a high-skilled professional job to support his or her family, when they could serve up burritos at the local Taco Bell and still support their family? This is not realistic, and the world does not – and cannot – work this way. There is a reason why people obtain the skills to get better jobs. This is what makes career progression even possible. It is why your local grocery store is clean and stocked with food, and why you are probably reading this article from the comfort of your home or building.
The net result in rising minimum wages is fewer jobs and an increase in prices for all of us. How does this help the economy? How does this help the very people whom our president claims to care about? It doesn’t. In fact, Obama’s policies demonstrably hurt the lower and middle classes by once again putting the burden of federal regulation on them.
To incentivize business, government needs to create a climate where businesses can operate without the fear of countless punitive regulations. To encourage businesses to stay here in the United States, cut the corporate income tax rate. Cut the personal income tax rate and cap it below 20%. Remove the minimum wage, which is far beyond the scope of the federal government, and let states decide what is in the best interest of their residents and businesses.
More business-friendly states will, naturally, see more business – and less business-friendly states will be forced to change. The free market is a powerful thing. It works. Americans see it work all the time in their local communities. So much of what Americans spend their money on comes at the discretion of the free market. It is enabled by a company’s ability to develop products and services that the people want and make money while doing so. The free market builds economies, not the government.
While our government continues to willfully ignore even the most basic economic principles of incentivizing business, low and middle class Americans will be forced to continue shouldering the burden of its incompetence.