The Tiresome Argument about Mlinimum Wage Laws

During the half century of my life that I have been old enough to pay attention to the news there has been nothing in politics more predictable than periodic fights about increasing the minimum wage.

It will start with Democrats pointing to poverty statistics and saying the minimum wage is so low it allows business to exploit workers.  Republicans will respond that increasing the minimum wage will force lots of business closures and hurt the economy.  Democrats respond that putting more money in consumers pockets will give the economy a boost.

The body of research by economists over the years tends to favor the Democratic argument somewhat based on what has actually happened but that might partly be a function of the fact the Democrats demands were always moderated by Republican opposition.  If the Democrats always got what they wanted we might well have ended up with a more stagnant economy.

So they are both right and they are both wrong.  Big box retailers, fast food chains and other big businesses that rely on very low wages to generate big profits are exploiting workers to some extent, and, equally important, are undermining consumer buying power, and thereby our economy, by using very low wages to pump up their profitability.    

On the other hand the small businesses or start-ups that are the backbone of our economy may not be making enough profit to pay more than minimum wage - in individual cases they may indeed go out of business, or decide to not start a business, if the minimum wage goes up.

From my position outside the argument it seems like a simple long term solution would be to link the minimum wage a business can pay to the profitability of the business.   

Thus a new business that isn't making any money could pay people a lower wage, but as the business grows in profitability, the minimum wage the business pays workers would rise.  

That approach would probably hurt Wall-Street a little bit, big businesses that rely on cheap labor would be less profitable.  But the added money in the pockets of people who actually spend all their money instead using the excess cash to swap assets back and forth with other well off folk would be a big boost to our economy.  It would increase demand that business could satisfy, and alleviate the asset bubbles that have plagued us the last couple decades.