Up-Arrow-Money-ChartIn spite of the rhetoric delivered by the President and progressive members of the House and Senate, raising the minimum wage does not help the economy, nor the people who make minimum wage.  It all boils down to simple math.

Let’s take a look at the average salary of a president of a company: $141,226 (payscale.com)

Now let’s look at small business (those with 25 or fewer employees) and say the president meets the average.

Mr. President of ABC incorporated has 25 employees that make minimum wage. The U.S. government raises the minimum wage from $7.25 and hour to 10.10, an increase of $2.85 per employee.

His employees are all part time working 30 hours per week, which now costs Mr. President an additional $85.50 a week per employee.

There are 52 weeks per year.  This means that the additional pay Mr. President must give his employees becomes  $4,446.00 per employee per year  for a grand total of $111,150.  This leaves the president of the company with $30,076 per year.

Now to many this sounds like it’s fair.  But what happens when the employer makes less than the average?  What if the employer has 50 employees?

Now let’s take a look at this increase from the perspective of the employee.

You just entered a higher tax bracket.  So let’s do the math.  You didn’t pay any income tax before.  You kept everything minus FICA and Medicare.  You will now get paid a gross of $606.00 per pay period (bi-weekly).  You have withheld $125.80 for income tax (taken from the IRS Publication 15), leaving you with $436.33 after FICA and Medicare are also taken out.

Are you much better off than you were before?

Before you grossed $435.00, exempting you from income tax.  That leaves you with $400.59 after FICA and Medicare are gone.  The difference they want to give to you?

$35.74 a paycheck.  That’s it.  And unfortunately there is another problem not yet addressed: price increases.

In order to be able to pay the additional wages of employees and remain profitable, businesses must do one (or both) of two things: increase product prices or lay employees off.  That means the extra $35 you got is paying for more at the pump, the grocery store, and anywhere else that compensated for the rise in wage, or you lost your job and file for unemployment, which is only about 60% of what you were making before.

Do you see the problem?

If a company doesn’t voluntarily increase wages based on sales revenue and success, and is arbitrarily dictated by government, you are worse off.

The best thing to do? Make yourself more employable to a company that pays more.  That is really the only solution.

Raising the minimum wage sounds great coming from a politicians lips, but when rhetoric meets reality, we end up worse off.

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One thought on “Raising the Minimum Wage Won’t Help

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