The State of the Union address. An occasion that gives Americans a barometer with which to gauge the health and direction of the country. A time where Americans are encouraged by the president and his leadership; or at the very least, encouraged by lofty anecdotes nit-picked to improperly represent failed, or failing, policies put forth by an administration that finds itself floundering on just about every policy initiative it takes up.
But if you’re going to push another policy initiative, push one that polls well whether or not it is actually a good idea. If there is a cute anecdote that can be used to illustrate the point, but fails to properly represent how the policy will work on a national level, all the better. Which brings us to the minimum wage debate currently raging across the country, and pressed by President Obama Tuesday night.
The decision by President Obama to sign an executive order increasing the minimum wage to $10.10 for employees operating under new government contracts is, quite frankly, disgraceful. I know what you’re probably thinking- “Hey, the president is trying to do a good thing with this. He has to act when Congress won’t.” Sure, it would be nice to think this tackles the income inequality everyone so desperately wants to address. But the fact of the matter is that the increase is simply a smoke-and-mirror political tactic with the goal of rallying Democrats around a wedge issue they desperately hope can be used in the 2014 midterm elections. Democrats are starting to feel the pressure, as they grow closer to losing control of the Senate as the minutes pass by.
Who is helped by this executive order? Who will receive a raise, and be triumphantly lifted out of poverty because of the kindness in President Obama’s heart? The total number or workers immediately reached by this mandate is zero. ZERO. The only employees affected are those under new contracts. In fact, the larger corporations bidding on government contracts are now going to have the advantage over smaller businesses when the government needs work done. That sure doesn’t sound like the economic populism touted by the President and the left.
Small contractors won’t be able to compete with this. They will have two options to remain competitive, both of which result in an obviously undesirable outcome. First, they can raise the bid on their contracts so they are still able to profit. Believe it or not, that’s what businesses exist for- to profit. A novel idea, I know. And when a business does not have the advantage of hiding profits in offshore accounts, they have to raise prices to offset the higher costs. So what happens when a small contractor raises the bid? The big government contractors swoop in and undercuts the little guy. Sorry, looks like you lose the bid. Workers lose jobs.
The other option is to cut staff in order to remain competitive against the larger contractors. Even if small companies are able to do so, the same result occurs. Workers lose jobs.
The most poignant way the President argued for a minimum wage increase on a national level was the anecdote of Punch Pizza founder John Sorano of Minneapolis. Mr. Sorano has determined it is best for the business that he owns and operates that he pay his workers $10 per hour. Punch Pizza is a very successful business, with eight locations in Minneapolis, and if Mr. Sorano feels it would better serve his customers and employees to pay his workers more, then of course, pay them more. Unfortunately, not all small businesses are as successful as Punch Pizza.
Forcing all businesses to comply with the wages a successful business like Punch Pizza is capable of paying its employees is not feasible. At a time when job creation is slowing down, and labor force participation is at its lowest levels since 1978, now is not the time to make it more difficult for businesses to hire and pay workers. With a minimum wage hike now, it will likely result in higher unemployment, and force more workers out of the job market.
Like most Americans, I agree with the president when he said this in his speech Tuesday night:
“Let’s do more to help the entrepreneurs and small business owners who create most new jobs in America.”
It would be nice if this order achieves that. Unfortunately, President Obama’s executive order raising the minimum wage on federal contracts does nothing to address income inequality. The number of workers that will be affected is so slim, that the action is laughable to begin with. The large corporations we are told to hate for causing the income inequality in the first place are the only ones who will benefit from President Obama’s action. But, just politics as usual.