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The hard reality of the minimum wage debate

Caricature of Steve

The fundamental questions about raising the minimum wage are who pays for it and how much should it be?

At first blush, the concept appears good.  People who are working full-time should be guaranteed a minimum hourly salary that fairly compensates them for their labor and provides financial independence.   The federal government defines a full-time worker as someone who clocks at least 35 hours a week.

However,  for millions of Americans a full-time job at the current national minimum wage of $7.25 fails to provide a living income.

According to U.S. Census Bureau (2013 report), the poverty threshold for a family of four is $24,420.  Health and Human Services (HHS), however, says the number is $23,850.  That’s the national average for 2014—the poverty line is higher in Alaska and Hawaii.

And even the proposed increase to $10.10 an hour would still leave many below the Poverty Threshold. That employee would earn $21,008—nearly $3,000 below the poverty threshold.

Why propose an increase in the national minimum wage to $10.10 an hour if the higher income still fails to lift workers out of poverty?

Consider the case of a small business with 10 full-time employees (FTE) all of whom are earning $7.25 and working 40 hours per week..  That’s an annual company payroll of $150,800.

Raise the minimum wage to $10.10 and the company now must spend $210,080—an additional $59,280–a 40 percent increase.

The company now faces a touch decision.  Even the most compassionate owner would have to reduce all 10-FTEs to 35 hours per week and still lay off two workers to meet the current payroll of $150K.

Many businesses are already struggling. The sluggish economy has squeezed company profit margins. And to reduce expenses many firms already are no longer funding workers’ benefits packages. Following passage of the Affordable Care Act (ACA),  businesses are cutting health programs and even some advocates of Obamacare concede the trend will continue.

In the heat of the midterm elections, the debate over the minimum wage makes good headlines. What is lacking in the discussion is the truth.

Many business will not be able to raise salaries and keep their employees.  Even if the national minimum wage were increased to $10.10 an hour, that salary would still fall short of the income necessary for millions of American workers to make a decent living.

For that shame both Democrat and Republican candidates and officials share equal fault for  their hypocrisy.

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