Let's talk seriously about the minimum wage debate. The current debate lacks several key components that, if better understood, could help us pinpoint the real dilemmas we're facing. The debate is split in two groups: the people who
are pushing for an increase, and the pundits, op-eds, and reporters who stress about the economic impacts of it's immediate implementation.
The Obama administration recently signed a bill lifting the minimum wage to $10.10 for federal contract employees. This helps some people, but for the country as a whole it doesn't affect all low-wage workers. Obama himself is in pursuit of having Congress pass a new federal minimum wage of $10.10 that would reach everyone. It would take two years for $10.10 to be in full effect in the year 2016. The bill is still being pursued at this time.
In truth $10 an hour for minimum wage is radically low when given the historical context of minimum wage before the 1970's. To offer a few numbers, if minimum wage kept up with inflation it would be roughly around $12-$14 depending
on which survey you follow. However, if minimum wage kept up with productivity – which grew 80% from 1973-2011 – the minimum wage would be around $22 an hour. To further emphasize the loss, if minimum wage increased along the same rate as it did with CEOs and other top managers, which between the years of 1973-2012 in some cases was 875%, it would be $33 an hour. The average salary across the US is $50,000 and it would be $90,000 today had it kept up with productivity. To calculate how much you'd be making today with your own income, MotherJones magazine created a nice little calculator for you here.
Since the recession, mid-wage jobs, which consists of $13-$21-an-hour wages, accounted for 60% of the jobs lost to the recession and only added to 22% of job gains in the recovery. For low-wage jobs, which range from $7.25-$13 an hour,
there was 21% of job loss, while making up 58% of job gains during the recovery. We should be acknowledging this fact of increasing rate of low-income jobs and the shrinking of mid-wage jobs, especially when considering that roughly 75% of the current minimum wage workforce is made of up of adults. This should be troubling to all US citizens and make us worry about where our economy is headed if we don't properly accommodate people with livable wages.
At the same time minimum wage jobs are beginning to take over employment opportunities in the US, plants are closing, manufacturing jobs are being exported to other countries, wages continue to stagnate, and unions are being
undermined with the passing of right-to-work laws, or through the two-tier wage system, which hires new workers at a lower price. At the very same time, corporate profits are through the roof at an all time high. CEOs are pulling in as much wealth as they were before the crash, in some cases more. The levels of disparity are equivalent to those of the Gilded Age, the years before the great depression.
According to both the EPI (the conservative think-tank Economic Policy Institute) and CBO (Congressional Budget Office) numbers, there has been a widening gap in income inequality. From 1979-2007 nearly 60% of economic gains went to the 1% while 36% went to the .01%. Many would consider the lack of proper compensation to the lower and middle classes between these times attributed to globalization, the expansion of the free-market, deregulation, and the deterioration of social safety nets. I'll admit these all levied a heavy blow on the labor force, but looking at the numbers and even according to the EPI's own reports, there was a purposeful shift of income distribution that started in the 1970s. Even while acknowledging high corporate profits during a time of a consistently growing poverty rate, we should admit that these companies are not seeing profits, but an exchange of money from the poor to the rich.
Now that we can see the problems, what are some solutions? There are two things pushing the minimum wage debate to the forefront of conversations. You have the workers themselves out in the streets protesting their poverty wages
demanding a $15 minimum wage increase. Then you have the $10.10 increase that the government is trying to promote where there is a real potential of being passed by congress.
What are the costs of increasing it from its current level of $7.25 to $10.10? Several articles, blog posts, and other political outlets refer to surveys that suggest our economy would struggle and unemployment would skyrocket. The truth, however, is a lot less terrifying. Many falsehoods are dispersed by such surveys as the “Neumark and Wascher” report, a report that is dismissive of claims that a minimum wage increase will boost the economy. The Libertarian magazine, The Reason, repeatedly refers to the “Numark and Wascher” report as evidence against raising the minimum wage. They refer to the report's conclusion that states it would increase unemployment, which is unthinkable in an already struggling economy. Many writers claim that well-known economists believe that raising the minimum wage would have a catastrophic impact on our economy. According to the government’s own numbers from the CBO report, there would be a trade-off between a potential loss of 500,000-1 million jobs and the raising of a million people out of poverty.
Other reports have economists agreeing that the economic benefits of raising the minimum wage would heavily outweigh the cost it may incur, 4 to 1. The magazine, The Nation, had an article about 75 of the leading economists
recently wrote a letter to the President urging that he and Congress raise the minimum wage to $10.10. The Economist
magazine in November 2012 reported up on how both the OECD (Organisation for Economic Co-operation Development) and IMF (International Monetary Fund) found minimum wage would do more good than harm.
A final falsehood to confront in the minimum wage debate is the effects on taxes and the potential cost increases that the consumers may confront. As for the small businesses, which many assert would take the brunt of losses, it is good to look at cities that have actually raised the minimum wage to $10, rather than reference outdated reports. The city of San Jose in 2012 voted to lift the minimum wage to $10. A report was written by the University of California, Berkeley predicting what the benefits and costs would be on the city and companies as a whole. In the worst-case scenario, the hardest hit areas would be restaurants. The report concluded that restaurants as a whole, to make up for the cost of raising the wage, would have to increase a $30 meal ticket by 25¢.
An updated report by San Jose Mercury News, looked at the city of San Jose a year after initiating the raise and found that overall there was no deep effect other than a two dollar increase, a drop in unemployment from 1 percent, and a growth of new businesses.
According to Census Bureau data, they found that roughly two-thirds of low-wage workers are employed with large companies with over 100 employees. This includes many companies like Wal-Mart, McDonald’s, and Wendy's.
Companies, in other words, that could handle the cut in profits. If you are worried about taxation, or raising cuts, or loss of profits for these big companies, keep in mind these companies are heavily subsidized by us, the taxpayers.
Aside from the usual municipal and property tax breaks, and other various subsidies these companies receive from local, state, and federal government contracts, the University of California, Berkeley, Center for Labor and Research
reported that more than half of families in fast-food work are “enrolled in one or more public programs, compared to 25% of the workforce as a whole. The cost of public assistance is nearly $7 billion per year.” These companies would be helping the economy two-fold, one by paying workers an actual livable wage and two by getting them off public programs.
As for those pushing for the $15-an-hour increase, they should keep an eye on the Sea-Tac, Washington, where citizens recently voted on raising the minimum wage to $15-an-hour, the highest in the US. At the same time, new Seattle City
Council member Kshama Sawant, is also trying to pass a bill that would raise the minimum wage for all workers of Seattle, Washington to $15-an-hour. She's gone as far as to reduce her 117,000 salary to 40,000, the average salary in the city, and use the remainder to build up social programs.
Berkeley, California is also currently working to raise its minimum wage to $10.75, which would be the highest throughout the state of California. Change starts in a local setting before it eventually expands to the federal level.
People interested in eliminating poverty and interested in raising the minimum wage should really press for this in their own local communities.
As Obama's federal minimum wage proposal continues to be debated in Congress, we should consider what Robert Greenstein of the Center on Budget and Policy Priorities says, “When you have a policy that adds $5 billion in income to
people under the poverty line, and lifts nearly one million of them above the poverty line...and you get all of these net gains for no federal budgetary cost, that's a pretty good endorsement of this as a positive policy to go forward.” By
not maintaining a proper middle class and letting them disappear into poverty wages alongside high corporate profits, the country and economy as a whole will pay the price.