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The President’s recent call to raise the federal minimum wage by nearly 25%, to $9 per hour from its current $7.25, highlights once again what has come to be seen as the defining split in government philosophy. Not since the days of FDR has the divide over how much of a role that government should play in the economy been so great. Although the wage increase is to be implemented in stages over the next couple years, the battle lines have long since been established, with those on the left generally in support, and those on the right generally opposed. Adding even more fuel to the fire is the part of the proposal that would ultimately link the minimum wage to inflation, resulting in automatic increases with no input required.
There are reasons that the minimum wage debates tend to be polarizing. First, it is a clear attempt to manually step in and reduce income inequality in the marketplace. The White House stated this as a primary goal, indicating that the proposed increase would offset the growth in income inequality that has developed over the past few decades. To those on the left, it’s a justifiable leveling of the playing field and a needed boost for the poor. To those on the right, it’s a misguided attempt to out-think the marketplace, driving up the costs of small business at a very vulnerable time. Those believing that inequality is inherently damaging, ultimately hurting society and the economy, are on one side. Those believing that the marketplace is smarter than the politicians, and that attempts to manipulate it will end up causing more harm than good, are on the other. Those are the pragmatic economic reasons.
But there are other reasons, perhaps even more polarizing, that have less to do with economic pragmatism than with moral rectitude. On one side you have those who consider the minimum wage as a tool for ensuring social fairness, carrying with it the moral weight of helping the poor. On the other side you have those who consider it exactly the opposite, a tool for unfairness, providing support for one segment of the work force while ignoring others.
Complicating the issue are sometimes contradictory studies, either strengthening or weakening the case for wage intervention. One side argues that raising the minimum wage clearly discourages companies from hiring low-skilled workers, the very people it is meant to help. Others argue that it does not reduce hiring, reducing instead employee turnover. And, of course, there are political complications. On the one hand it would seem to be a politically easy sell to offer more money to part of the electorate. On the other hand an even larger part could view it as politicians buying votes with somebody else’s money.
Regardless of the final outcome on the President’s proposal, look for a long and bumpy ride as supporters and opponents use it as an opportunity to win political points.
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