Will Raising The Minimum Wage Help or Hurt
Income Inequality?

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I learned a long time ago that it can be a big mistake not to listen to your accountant. Sure, accountants may not be the coolest guys in the room but rest assured they know their numbers. Ignore what they say and you will certainly hear an “I told you so…” at some point in the future.

A report in the New York Times details how the smart accountants at Congressional Budget Office determined that raining the minimum wage from $7.25 and hour to $10.10 and hour will most liking push 500,000 workers into unemployment.

cbo - seal

That increase from $7.25 to $10.10 represents a 39.13% raise. When was that last time a business could pass out a 39.13% wage increase (not to mention all the other tacked on tax increases) without something else being affected. And I can guarantee you that if the cost of a Big Mac increases by almost 40% more people may take up the gentle art of cooking at home. Or eating a bowl of cold cereal for dinner.
To hold price increases to a more rational level you will see a significant drop in the number of employees behind the counter and in the working at the grills.

MESC UNEMPLOYMENT2#67134

The good news from the Congressional Budget office is that at the $10.10 per hour minimum wage 900,000 families would be lifted out of poverty and increase incomes for 16.5 million low-wage workers.

500,000 people lose their jobs while millions see higher wages. Seems like more  Income Inequality to me.  And it’s all sponsored by our fine people in Washington D.C. I thought they wanted to fight income inequality.

And… There are surely two other serious unintended consequences from a 39.13% minimum wage increase…

U.S. Fast Food Worker... "What-a-ya-have?"

U.S. Fast Food Worker… “What-a-ya-have?”

1) Expect that at this higher wage rate a whole new crop of job applicants will be knocking on the doors of your neighborhood fast food restaurant. At this higher wage I would bet  some of those low skilled college graduates now living in mom and dad’s basement could learn to love flipping burgers. All those hard working people with only a high school diploma who may be rough around the edges may be the first of the unfortunate 500,000 to go. And if these newly motivated college educated minimum wage workers can get more done faster expect that 500,000 number to go up. If yo don’t believe this then take a look at who works behind the coffee or burger counter in places like Belgium or Ireland. Higher minimum wage higher quality workers. Where else can you get solid insights on 18th Century French literature along with your morning caffeine fix? It could happen here!

Belgian barista - "Would you like some Poetry with that Latte?"

Belgian barista – “Would you like some Poetry with that Latte, kind sir?”

2) At a lower $7.25 hourly wage an employer can take a chance on someone who with less than stellar experience.  At $10.10 an hour and more qualified people knocking on the door the days of a first job at McDonald’s are gone. Where will people get on that first rung of the employment ladder?

For years we have been hearing about the perils of huge minimum wage increases. When even the accountants at the Congressional Budget Office sound a warning may we should listen.

Or… Get ready for a big “I told you so…”