Editorial: Fixing minimum wage will not alleviate US economic burdens

After delivering the State of the Union Address on Tuesday evening, President Barack Obama visited West Mifflin, Pa., yesterday to speak with locals about initiatives he proposed in his annual address to the nation.

In particular, he pushed for an increase in the federal minimum wage.  Currently set at $7.25, the federal minimum wage could see a $3.95 increase to $10.10 and be indexed to the inflation rate.

Raising the federal minimum wage is a measure that has received attention in Congress before, but unfortunately has not resulted in prolonged economic stimulation. In fact, the minimum wage has failed to properly address the increase in consumer prices and fluctuation of inflation rates. Now, the average consumer’s buying power has been stunted by a low minimum wage and overburdening taxes.

Obama’s initiative to raise the federal minimum wage to $10.10 in the coming years is deceivingly optimistic. While it seems that workers who are currently paid $7.25 for their employment will see a significant increase in monthly income, the long-term effects of increasing the minimum wage are unknown. More importantly, a raise in the federal minimum wage is one of several changes that need to be made in order to address the bigger problem: diminishing consumer buying power.

Proponents of raising the minimum wage and indexing it to inflation tout the increase in circulation of capital the economy will experience that will ultimately lead to a more expansive, prosperous economic setting. If workers are paid higher wages, they are theoretically more likely to use their increased paycheck to buy goods and services. That influx of capital is supposed to affect the economy in a positive way: Businesses should see an increase in sales and profit.

However, it’s almost naive to believe the federal minimum wage has the capability to serve as such a large catalyst for economic stimulation. Many other components have to at least be considered.

First, the federal income tax system is in serious need of improvement. The contingent that earns wages in the vicinity of or below the federal poverty line are generally those that will see the biggest increases to their income after a rise in the minimum wage. With increased wages, it is likely this group will be considered for higher tax rates, as well, and in theory, more money will be going to the federal government.

Second, the prices of goods and services have increased drastically due to higher production costs and economic stagnation. The federal minimum wage is not proportionate to the rising costs of living, which has already put many Americans in a hole financially. Without at least addressing the costs of living for those who are single, married, have children, etc. and adjusting wages and tax rates accordingly, how will there ever be a minimum wage that is high enough to counterbalance poverty and economic disparity?

The President’s initiative — teaming with Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Calif. — to increase the federal minimum wage is a good start. This, if implemented, would result in short-term economic relief for workers who currently receive an hourly wage of $7.25. 

But the current administration has to look at addressing the larger problem, namely the diminishing buying power of consumers, with a multipronged approach to fixing the over-complicated federal income tax system, the serious rise in prices of consumer goods and other structural issues in hopes of achieving long-term economic prosperity.