Governor of California, Jerry Brown, said he would sign into law any legislation that came his way raising the minimum wage to $10.00 per hour for California workers. Today President Obama admitted that 95% of the income gains since he has become President have gone to the top 1% of wage earners and that he would like to see the federal minimum wage raised to $9 per hour. The President said, “Businesses don’t seem to realize that raising incomes for middle and lower income families means more customers.”

Yeah, maybe. What most politicians don’t seem to realize is that they can force a wage increase on businesses by raising the minimum wage, but that doesn’t necessarily translate into a higher standard of living for middle and lower income wage earners. They aren’t looking at the other side of the equation. Or maybe they are, but they just don’t want to tell anyone the other side.

Let’s assume that you are a businessman and you know what income it takes each year to meet your expenses, pay your employees and their benefits and give yourself an income that you desire. Because politicians have decided to raise the minimum wage, all of a sudden your cost of doing business has gone up. Now, according to the President, this should mean you will have more customers and even though your cost has gone up it should be more than offset by more customers. Well, not only has your labor cost gone up, but so has the labor cost of all the people you deal with. Your suppliers, transportation providers, banker, insurance company, janitorial service, etc., all have to pay higher wages. Are they going to be nice guys and eat the cost? No, because they also know what it takes to pay their bills and provide themselves with a decent standard of living. They are going to pass those costs along to you. So not only has your labor cost gone up but so has the cost of every other aspect of your business. What are you left to do? Decrease your personal standard of living or pass your higher costs on to your customers?

So a minimum wage increase will eventually work its way into increased costs in all areas of life. Pretty soon we all find ourselves spending more on rent, utilities, food, transportation and all other necessities and our discretionary income hasn’t changed at all. In reality we really don’t have more money to spend and our standard of living hasn’t gone up one bit.

Labor goes to the cheapest source. Politicians also don’t seem to realize this. California is bleeding. Jobs and businesses are fleeing California because of high taxes and onerous regulations and now Governor Brown wants to raise the cost of labor in a state already bleeding jobs? Remember Detroit?! Unions got auto worker’s wages and benefits so high that automakers had to manufacture cars elsewhere lest no one could afford to buy one. When the jobs left Detroit, what happened to the city? People left. Tax revenues went down. Services were cut. It became an unpleasant place to live and now is in bankruptcy.

The truth to the matter is that we are in a global market where productivity has increased and businesses can now do more with less and less workers. Our workers are competing with workers in China, India, Brazil, Mexico, and all over the world for jobs. Setting our minimum wage at uncompetitive levels will only drive jobs out of our country and raise the cost of goods and services to all. Why is that so hard to see?

Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.

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