The U.S. minimum wage is criminally low. In spite of the highest GDP among industrialized countries, the U.S. minimum wage of $7.25 per hour is lower than any other country of comparable prosperity, according to the CIA Factbook. Australia and Luxembourg top the list at $16.88 per hour and $14.24 per hour, respectively. The U.S., on the other hand, in 13th place, is one spot below Japan — which has been in a constant recession with massive inflation for the better part of two decades — and just two places above war-torn Israel and four places above Spain with its imploding economy.
So now that we’ve established that the U.S. is in poor company with its current minimum wage, let’s think about why increasing the minimum wage is exactly what the U.S. economy needs.
When you have a certain money supply, the way the economy grows is by spending each dollar more times. If you have a GDP of five million dollars and a money supply of one million dollars, you average spending each dollar five times in a year. To increase from there, you either have to spend that dollar more times, or increase the money supply, which causes inflation. People with lower incomes spend more of the money they make on a monthly basis, thus increasing consumption: growing the economy without a big inflationary impact and without resorting to increased deficit spending.
The most common objection to increasing minimum wage is that it would make products and services cost substantially more. Although that assertion would need to be quantified on a company-to-company basis, a recent analysis of McDonald’s books showed that only 17.1 percent of profits went toward employee compensation and benefits. Though the analysis had some flaws, chiefly that it only analyzed stores owned by McDonald’s Corporation and not independent franchises, it was eye opening to many people. The net effect is that a doubling in wages would result in a 17 cent increase per dollar on food items. I certainly like getting McDoubles for a buck, but I know I’d be willing to pay $1.17 if it meant the college students, single mothers and out-of-work breadwinners that are increasingly populating McDonald’s staffs could earn a decent living.
Increasing the minimum wage would also help ease income inequality in the U.S.. Plenty of factors contribute to this problem other than minimum wage, obviously, but the U.S. is No. 95 in the world in income equality. So what’s my qualm here? Do I have some misplaced notion of “fairness?” Not exactly; more like a concern for peoples’ mental health. The British Journal of Psychiatry published an article that went as far as to state, “greater income inequality is associated with higher prevalence of mental illness and drug misuse in rich societies.”
Association doesn’t equal causation by any means, but it makes sense logically: if you feel like you have no chance of competing in the marketplace, and feel like you have no ability to earn a decent income, you’re not going to be a ray of sunshine. Increasing the minimum wage would help more people feel like they have some skin in the game and more control over their financial futures.
