Sen. Bernie Sanders, a Democratic socialist politician from Vermont who chairs the Senate Committee on Health, Education, Labor, and Pensions (HELP), recently submitted a proposal to raise the federal minimum wage to $17 an hour. He argued that a $17-an-hour minimum wage is needed to help workers keep pace with the rising cost of living across the United States. He claimed:
“I am delighted to announce this morning that on June 14, the Senate HELP Committee will be marking up a bill to raise the minimum wage to $17 an hour over a five-year period.”
The senator’s suggestion—a $2 increase from his 2021 proposal—is designed to keep pace with inflation, Sanders said in remarks decrying congressional inaction. He said:
“The last minimum wage bill passed by Congress was in 2008. You think it’s time to raise it? I do and most Americans do, so we’re gonna do our best to get this off to the floor as soon as we can.”
Raising the minimum wage on moral grounds may make sense but not on economic grounds. Beyond the attempt to raise the minimum wage to keep up with inflation, Sen. Bernie Sanders believes that raising the minimum wage can help workers earn a living wage. This reasoning is flawed.
Raising the minimum wage does not lead to or make it to a living wage for the simple reason that the cost of living is based on market value. The living wage is based on the market value and the market value is based on the rate of inflation. The average American must understand that the fundamental reason why bureaucrats in Washington and state governments increase the minimum wage every year is simply because they need to keep up with inflation and not because it actually improves people’s living costs.
When Senator Sanders claims that raising the minimum wage is necessary for workers to make it a living wage, he omits the fact that the cost of living does not remain static. It increases. When the minimum wage is increased, the market value also increases. As the market value is based on the inflation rate, when the prices of goods and services inflate, the living standard also inflates because an equilibrium needs to be maintained otherwise an economic bust will occur. If the living standard of a given area increases, the purchasing power of the consumer in that area, on the other hand, decreases because the latter will not have enough money to spend. Increasing the minimum wage concurrently surges the living wage and diminishes the purchasing power of the consumer. Consumers would have less to spend if prices are high because they cannot afford it. Therefore, demand will plummet.
Since the living wage is based on market value, it, therefore, fluctuates according to the market value. Consequently, the real value of a $17 minimum wage would depend on where each of us lives. Living costs not only vary throughout the country, but they can also vary within individual states as well. Giving low-paid workers everywhere in the country the same real purchasing power would require hundreds of different minimum wages, scaled to each locality's cost of living. For example, a low-skilled worker paid at $13 an hour in Waco, Texas can afford a living wage because the living wage is lower since the market value in Waco is lower. If that same low-skilled worker were paid $13 or $14 and lived in Washington, D.C.; that worker would be in the poverty threshold because the minimum wage in Washington, D.C. is $14 an hour, and the market value there is significantly higher. It suggests that a low-skilled worker living in places like Washington, D.C., San Francisco, or New York City, has a higher likelihood to remain poor than if he was living in Kentucky, Texas, or Georgia.
Regardless of where we stand whether it is politically or ideologically, we shall recognize that the minimum wage, despite its noble intentions, is not the salvation that the American people have expected from it. Raising the minimum wage will not make everyone better-off overall. Too many different factors are involved in the process to determine if increasing the minimum wage nationally is a good idea