Rushville Republican

January 21, 2014

Education is the key to the problem of income inequality

By Paul W. Barada
Rushville Republican

---- — According to the Fair Labor Standards Act (FLSA), the current federal minimum wage is $7.25 per hour. There’s a movement afoot by a few who want to double that minimum to $15 hour. The argument is that employees who earn only the current federal minimum are living at or just above the poverty level. Some fast-food workers in particular have been the most vocal about demanding that they be paid $15 per hour. In fact, as recently as last July, thousands of fast-food workers in seven cities staged a one-day strike for an increase in pay to $15 per hour.

This may sound hard-hearted, but the wage paid for a particular job isn’t based on what the employee needs to live a comfortable life, but on the value of the job itself to the employer. But, just for the sake of discussion, let’s suppose that the hourly wage for fast-food workers was increased to $15. What do you suppose would happen? Would the greedy fat-cat owners of fast-food franchises just be left with less profit? Hardly. Fast-food restaurants already operate on slim profit margins. They would probably be forced to increase menu prices, which would decrease the number of customers and, ultimately, reduce the number of employees needed to work in fast-food restaurants.

Two of the major fast-food chains show profit margins around 10%. In many locations labor expenses exceed profits, so increasing the hourly wage to $15 per hour would really slash their margins. If payroll costs doubled and other expenses didn’t decrease, menu prices would have to increase. That would probably mean that the price of a Big Mac, for instance, would increase by about $1 which would likely send consumers elsewhere.

But there’s another side to this issue that also needs to be discussed. Fast-food jobs are geared more toward entry-level jobs for teenagers, students, and part-time workers. A fast-food job is generally the place where young people start their careers and training. Older workers with families to support who took fast-food jobs during the recession have a tough time making ends meet, let alone saving or positioning themselves for upward job mobility. If, in other words, the hourly wage were raised to $15 per hour, many older workers would push younger workers out of the fast-food job market, and flipping burgers would become a career for some.

The impact, particularly for small businesses, of increasing the minimum wage to the $15 per hour range would be more severe than many of its advocates realize – unintended consequences, I think they’re called. For example, it would force many small employers either to struggle to increase revenues or find ways to cut expenses, which would likely mean cutting employees, not hiring new employees, or bringing in new technology to decrease the number of employees required to do various jobs.

Getting back to the point about the employer deciding what a particular job is worth to his or her company, not the employee, it’s important to remember that private businesses are not social service agencies who can, or who should, be expected to pay more than the actual value of the job. There’s already a federal hand-out program, called the earned income tax credit which provides supplemental income to people who are working but need more money.

The current administration has also started talking about extending unemployment benefits, as well as increasing the minimum wage, and campaigning against “income inequality.” Why do you suppose that might be so? Could it be a diversion to take the public’s mind off the horrible rollout of Obamacare?

The problem is that too many adults don’t have the educational background to land successfully a better paying job than flipping burgers. Education, therefore, is the key to the problem of income inequality. Another thing people don’t seem to realize is that the current administration has in mind bringing high income earners down through taxation, not pulling the bottom wage earners up! That’s really what the latest administration initiatives are all about.

Extending unemployment benefits, which already last 99 weeks, by another three months – who do you suppose is going to pay for that? Whom does that impact? The answer is: consumers of goods and services who have better paying jobs and who also pay taxes. Finally, income inequality is about pulling down those who earn more and redistributing it to those who earn less – not helping those who earn less acquire the skills to earn more. If increasing the minimum wage from $7.25 to $15 isn’t an example of redistribution of wealth, I can’t imagine what is!

Just think about it. Why should an employer be forced to pay $15 an hour for a job that’s really worth only $7.50 per hour? Is it because the employee with a family can’t get by on just $7.50 per hour? If that’s so, whose fault is it? That’s why I harp on the theme that education is the key to everything to which people aspire in life. The more educated people are, the better the jobs they’ll be able to land. That’s the reality of how the system works.

That’s—30—for this week.