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Politics,… Plain and Simple Politics
By JLP | January 24, 2007
Story: Minimum Wage Hike Could Sting Small Businesses
This makes no sense to me other than pure politics. I read a quote somewhere (I don’t remember where) that said something to the effect that minimum wage workers have not received a wage increase in over nine years. This is a HUGE mistatement. How many workers who were making $5.15 per hour in 1997 are STILL making $5.15 per hour now? That would imply that they NEVER got a raise, which doesn’t say much as to their value as an employee. (See here for a history of the minimum wage.)
I remember back when I earned minimum wage. I didn’t earn it for long! Why? Because I was a valuable employee. I went above and beyond and my manager noticed and gave me raises based on my performance. Folks, it’s NOT HARD to stand out in a sea of mediocre employees!
Why don’t we try to find ways to wean people off of minimum wage instead of it? Shouldn’t that be our goal? Otherwise, aren’t we going to be faced with this same issue in the future?
Topics: Business News | 28 Comments »
January 24th, 2007 at 11:43 am
Here’s an interesting article on the minimum wage.
The minimum wage is a classic example of a policy where people get confused about a principle (ie, helping the poor) and specific government policies. A better government policy is to use the EITC to help the poor instead of the minimum wage, but whining about the low wages of the poor – and the supposedly fatcat employers who don’t pay them “what they’re worth” – is a good way to wallow in self-righteous concern for the workingman.
January 24th, 2007 at 12:32 pm
The minimum wage issue is simply another form of ammunition in the politicians’ guns.
It’s a way for politicians to influence voters in elections and is often used as misinformation to attack other politicians with opposing views on the matter.
Further, as wages increase, this just creates more incremental tax revenue for the IRS/Gov’t. Another indirect benefit to the politicos/gov’t to raise minimum wage. If we can’t get a tax increase passed, let’s just mandate higher pay at current tax rates, I guess is the logic.
Often lost in the discussion is the fact that biz owners would be able to pay more in wages if not for the increasing burdens of other employment costs, taxes, insurance, etc.
Rarely, I’ve found, do employees look at their “total compensation” — but you can bet their employers sure do.
January 24th, 2007 at 2:17 pm
I think it’s VERY important to understand the point behind the argument – minimum wage workers have a CONSTANT wage rate. If a minimum wage worker were to recieve a wage raise, they’d no longer be a minimum wage worker.
So, it’s factually correct to say that minimum wage workers have not recieved a raise in nine years unless there was a state minimum wage rate increase.
January 24th, 2007 at 2:38 pm
An interesting site to note:
http://www.dol.gov/esa/minwage/america.htm
Currently more than half of the states in the country have already adopted a higher minimum wage rate than the federal limit, and in some cases even higher than the new proposed rate hike.
There are a handful of states that don’t have a minimum, or have just adopted the federal rate, but the majority of the country has already increased their minimums.
In my opinion, regardless as to whether or not a minimum wage increase is needed, I think it should be up to states to make the laws for their minimum wage. With substantial cost of living disparity across the country it would be in the best interest for the state to set the rate that is most appropriate for their citizens rather than let the federal government apply a broad brush to the whole country.
January 24th, 2007 at 3:38 pm
I agree that someone making minimum in 1997 should be well above that now, but what about the folks just starting out? According to the Center on Budget and Policy Priorities,the cost of living has risen 26% since 1997.
That said, I think the minimum wage should be set on a sliding scale depending on the cost of living in different locales. The minimum for San Diego, for example, should be proportionately higher than for Pascagoula, MS.
January 24th, 2007 at 3:43 pm
I grew up in a small town in rural Louisiana. Most of my relatives never graduated high school, and more than a few of them work minimum wage jobs — mostly because there aren’t many other jobs to be had in a lot of small rural towns.
My aunt is in her 50s. Her husband, my uncle, has a bad back and can’t do what he’s always done, which is fix people’s roofs. She works one 40-hour-a-week job at a discount store, shelving and handling inventory. She’s a good worker, never misses a day. Then she works 20 hours a week at night, selling cards at a bingo hall. She makes minimum wage at both jobs because, again, there aren’t many better jobs to be had, unemployment is high, and employers know there’s plenty of labor available and that they can pay dirt.
She works 60 hours a week, every damned week, has no health insurance, and no paid vacation. For all this, she makes $309 a week, or about $15,000 a year.
In the 1960s, the federal minimum wage was worth $9.12 an hour in today’s dollars. The last time the minimum wage was increased, in 1996, $5.15 was worth what today is almost $6.50. In real terms, what we pay minimum-wage workers has decreased steadily for the past four decades. And any number of studies have shown that the scaremongering of business interests before a minimum-wage increase never turn out to much. Show me all the recessions cause by past minimum-wage hikes.
I say all this to ask you to look at the callousness of your comments, JLP. I like your web site a lot, and you seem like a smart guy. You (and I) are obviously not in situations like my aunt. I got out of town, went to college, got a good job, and all the rest. I wish everybody could do that. But not everybody can. It’s always going to be that way — there’s always going to be somebody on the bottom.
To generate such incredible outrage over requiring companies — in a period of consistent double-digit growth in corporate profits, no less — to pay a measly seven bucks and change an hour…well, I think it’s beneath you, JLP.
January 24th, 2007 at 3:57 pm
Hear hear, Josh!
To all the commenters saying high cost of living states and cities should have higher minimum wages – most do. See this map: http://en.wikipedia.org/wiki/Image:US_minimumwage.svg
5 states have never set their own minimum wage, so it defaults to the federal one. Kansas’ minimum wage was outpaced by the feds some time ago. Many other states have specifically passed laws saying their minimum wage will be whatever Congress decides.
January 24th, 2007 at 4:16 pm
I’d be all for an expansion of the EITC to help the working poor. However, there are a number of hoops to jump in order to file for it, which means that those who most need it are the least likely to get it. Not to mention that refundable credits are only distributed during tax season, rather than throughout the year.
And despite all the arguments about labor force composition and incentives, I can’t silence the voice that says “any business that can’t maintain its employee base without paying declining real wages probably shouldn’t be in business in the first place.”
January 24th, 2007 at 4:22 pm
Josh,
Tell your relatives to move to Wyoming. I hear tell that in Gillette, WY that pizza restaurants are offering delivery persons $15/hour because the job market it so tight. Restaurants in Rock Springs, WY can’t find anyone to work either because anyone that can pass a drug test can get a job in the oil fields for big bux. Stories like that show up all the time.
Oh and by the way, another perk is that you get to live in Wyoming instead of rural Louisiana.
January 24th, 2007 at 4:35 pm
Josh,
It is not my intent to be callous. As you said in your comment, we can keep raising the minimum wage and we’ll still have those who live in poverty.
Why stop at $7.25 per hour? Why not pay everyone a minimum of $15 per hour? Where does it end?
January 24th, 2007 at 5:34 pm
Sam: Certainly a mass exodus to Wyoming would be a much more efficient means of helping America’s working poor than, say, raising the minimum wage. I’m sure my aunt would be able to find a house at a reasonable price, based on the $25,000 or so she could get for selling her paid-for current home. And I’m sure she wouldn’t miss her children, grandchildren, or her dying parents. (Not to mention crawfish.)
This is the problem with a certain school of conservative economic thinking. It treats labor as a commodity to be maximized and workers as widgets to be moved around. That’s fine in an academic context, fine in a computer model. But it’s not fine when you’re dealing with real people.
We, as a society, have decided that the labor market should not be completely unregulated. We don’t let five-year-olds work in coal mines; we don’t let debtors sell themselves into chattel slavery; we don’t let companies create hideously unsafe work environments. I don’t have any problem with saying that every working American’s time is worth at least $7.25 an hour — all of $290 a week before deductions.
JLP: Really, a slippery-slope argument?
If we ever get to a point when the House of Representatives is debating a $15/hr. minimum wage, I’d be happy to hear all sides of a reasonable discussion. But you’re we’re not talking about a $15/hr wage. We’re talking about a $7.25/hr wage — still substantially lower in real dollars than 40 years ago.
“Where does it end?” Are you saying we should just keep a $5.15 minimum wage for the rest of time, that we shouldn’t even adjust for inflation? At 3.5% inflation, today’s $7.25 will be worth $15 in about 20 years. By then, I’d certainly hope that the minimum wage is a lot higher than today.
You’re the one saying that there’s no reason to raise the minimum wage other than “pure politics.” There’s also human decency.
January 24th, 2007 at 7:06 pm
Interesting discussion.
To add fuel to the fire…
Josh, Are the business owners just supposed to magnanimously increase wages without increasing prices? Should we set price limits on these businesses so they have to absorb the cost increase? Either way, in a free market economy the owner will adjust to the environment and if their costs increase, so will their prices. I would guesstimate that the net effect would be the worker’s wages would still have the same buying power.
Seems like a no-win situation.
January 24th, 2007 at 8:58 pm
The minimum wage is just like any other regulation: make it more onerous, and it will be worked around. In this case, workers who aren’t producing enough at their wage will either be replaced by machines (substituting capital for labor), replaced by other workers (offshored/outsourced), or the work will go underground to be done by illegal workers. If you go to Europe, you’ll see all of the above, as well as higher unemployment and more stagnant economies.
January 24th, 2007 at 10:38 pm
Anyone that feels a minimun wage of $7.25 is a living wage, most likely has not supported a family on that wage. Even making $15 – $20 an hour then deducting taxes and health insurance leaves a worker bringing home around $300 a week. Yes, small businesses feel the crunch each time the minimum wage is raised BUT just how many minimum wage earners work for companies that are not small and struggling.
I would not suggest that wealthy corporate American should subsidize the low income worker. I am saying that there are an incredible number of companies that could pay more yet choose not to and in the end create more workers that cannot buy homes, cars, invest and build futures.
As someone that made $5.00 an hour working on a potato harvester as a teenager in Maine in 1978 – It’s my opinion that it’s time to raise the minimum wage in the United States to at least $7.50 hour
Great Discussion!
January 25th, 2007 at 3:34 am
The problem isn’t whether people “deserve” $7.50/hour or $750/hour. The question is whether the government policy of the minimum wage actually works. If you think people need more income than the minimum wage to survive, you may be right, but is raising the minimum wage going to actually help them? That there’s no such thing as “deserving” in the world economy. The right place for this sort of thing is government assistance or charity.
The minimum wage itself is a form of government assistance, and one that works rather badly if the purpose is to help the poor. Like any restraint of trade, it ends up hurting the people it’s supposed to help.
January 25th, 2007 at 7:06 am
I think anyone who complains bitterly about the MW and the EITC deserves to end up in circumstances where they have to work at the MW for a few years. It isn’t pleasant. And moving isn’t usually an option. These people have a support network (such as it is) in place.
That said, I’m not thrilled with the MW. EITC is much better at helping the poor without lifting the mall-inhabiting teenagers as well. There’s little sense in raising the MW if the small rural shops go out of business.
January 25th, 2007 at 7:42 am
jr,
I have made minimum wage before. You’re right: it’s not fun. However, it is not meant to be a career wage.
January 25th, 2007 at 8:18 am
Finally a decent discussion on the minimum wage. Here’s my points –
1. Increasing the MW is really a tax increase when you consider the effective tax on the working poor from social security and medicare is 15.3%. And of course EITC will go down. And of course state and local taxes will get their bigger cut. And of course the states will have larger unemployment and public assistance costs from the folks that WILL lose their jobs at small and large businesses, which will be passed on as higher taxes.
2. Reality – If you receive a low wage for your work, your work isn’t worth much to us.
3. Consider the extremes.
If we changed the minimum wage to $95 an hour tomorrow, what would rural LA look like? I see massive unemployment, no groceries stores, gas stations, or restaurants. I see small town governments disappearing. I see a massive reduction in fire departments and no policeman in the street. I see huge numbers of children in each classroom and skyrocketing property taxes. I see real estate values collapsing and tax sales of homes on the courthouse steps everyday.
BUT, what if we eliminated the minimum wage completely? I see small businesses keeping wages on current employees the same, but I also see them bringing in new-hires at a lower wage. I see more people in more jobs. I see more people going to different jobs. I see more businesses giving more chances to different people, but starting them out at low wages. I see more people finding things they’re good at, doing very well at it, and making more money because they’re so valuable.
January 25th, 2007 at 9:38 am
Great discussion.
People decide what they think their time is worth. If I don’t think my time is worth only $5.25, then I won’t take a job paying me that much. However, if I think that taking a job as an unpaid intern is a good move because I will learn a lot from it, etc., that’s my prerogative. You can be compensated in ways besides money, i.e. experience and contacts.
January 25th, 2007 at 10:24 am
Jack: Unless I’m misreading it, your argument about “minimum wage increase = tax increase” is nonsensical. Yes, if poor people make a higher salary, they pay more in taxes and therefore it isn’t a good deal for them. Huh? By that logic, you should have turned down every raise you’ve ever been offered, because each time your salary increased you paid more in SS/Medicare/fed income/state income tax.
If I’m a full-time worker making $5.15 minimum wage, my annual income is $10,712. I’d pay $1,639 in SS/Medicare taxes — a net of $9,073 a year.
If the minimum wage is increased to $7.25, my annual income goes up to $15,080. The amount I pay in SS/Medicare goes up to $2,307. But I still very much come out ahead — my net increases to $12,773.
As for your “consider the extremes,” for heaven’s sake, can we all agree no one is talking about setting the minimum wage at $95 an hour? Eating one slice of bread is not the same as eating the total contents of 25 bakeries. Yes, Jack, if we had a minimum wage of $95/hr, there would be all sorts of negative effects. Now tell me how *any* of those Blade-Runner-esque effects would be caused by $7.25 — a rate that, remember, is still 25% *lower* in real dollars than the minimum wage 40 years ago.
On the other hand, I have no idea what planet you’re living on if you think eliminating the minimum wage would lead to the thousand-flowers-blooming you claim. The whole reason for having a minimum wage is that there is a group of workers who are, in effect, nearly powerless to negotiate higher salaries. They don’t have higher education; they don’t have unions; there aren’t better employers fighting over them. Do you think their employers are paying these people $5.15 because they decided that precise number was the fairest possible wage? Or do you think it’s because that’s the lowest they can legally pay — and that if they could pay $5 even, they would?
Finally, what I don’t understand is how these same arguments get trotted out every single time there’s an inflation adjustment to the minimum wage — small businesses collapsing! skyrocketing taxes! fire and brimstone! — and yet they’ve never come true. Somehow, America still exists!
January 25th, 2007 at 10:38 am
[...] Minimum Wage – Increasing the Federal Minimum Wage – Is it Charity? By debtcrun On All Financial Matters there is a powerful discussion about the politics of raising the minimum wage. Since Debt Crunch is essentially for the lower wage earner with the desire to live debt free, this discussion is critical. What will really fix the problem of earning only minimum wage? Is having a federal minimum wage just another “charity” program? Is the Earned Income Tax Credit the same thing? A charity program for the low wage earner? [...]
January 25th, 2007 at 12:52 pm
The biggest problem is that there are people who are in there 30’s and 40’s earning minimum wage or within a dollar or so of it. Many cities have programs that are called Temporary Employment Agencies, these jobs pay right around minimum wage with no hope as to an increase in your salary or advancing to a different job. Many receptionist at doctor’s offices, resturant cooks, and a host of other support jobs are done through people who work these jobs, sometimes for years on end, sometimes for only a few weeks.
There is one man that I personally know who has worked at a postion as a chef for a local resturant. He works harder than anyone I know, and makes wonderful food, yet he is only making 35 cents more than when he started working 6 years ago.
The problem is that many employers do pay only the mimmunim wage and nothing beyond that, and many of those same employers do not provide salary increases in any form. There are people who are trying to live on $5.15 an hour working 40 hours a week.
As to the arguement of the wage hike being a tax increase, yes taxes will increase somewhat, however someone making the minimmum wage and really within a dollar or two of it, will recieve 90% of their taxes back at the end of the year.
January 25th, 2007 at 1:48 pm
Justin – Please tell the man you know that he is a LOSER! There is a vast market out there for people who work very hard and make great food. He needs to develop some ambition and go out there and make his life better instead of staying at the same crappy job with no raise for SIX YEARS. Either that, or maybe he doesn’t work that hard or his food isn’t so great. This is the land of opportunity and the opportunities are out there but you have go take them instead of sitting around waiting for the government to hand them to you.
January 25th, 2007 at 2:50 pm
A few weeks ago, NPR had a piece on MW and used Florida as a case study. A few years ago, Florida raised their minimum wage above the Federal standard to $6.67. Before hand, there was the expected political debate with the expected rhetoric coming out of both sides. That includes the arguments of small businesses being hurt, the working man being better off, etc etc. What actually happened is nothing like either side predicted. Small businesses in Florida are still going strong and the % of workers on MW is still incredibly small relative to the working population. In the words [paraphrased] of the small business owners interviewed, “You can’t get good work for minimum wage. You have to pay more.”
January 25th, 2007 at 6:36 pm
JLP: I worked at MW too. Twenty years ago. Fortunately, I had no family to support at the time.
On the other hand, in the rural parts of this state, MW is not unusual for small shops. Again, fortunately, usually these are the wives of paper mill workers. But… when that mill goes out of business (a few have recently) people are trying to support a family on MW.
Two other cases I know of personally – relatives who were ill, and reduced from self-employment to MW jobs. Cancer can take you down hard.
January 25th, 2007 at 6:46 pm
I should reiterate that basic economics shows that the raising the MW eventually only has a minor boosting effect for poor folks. Eventually, most of the MW hikes gets absorbed into the system, and prices rise.
The EITC actually gives a boost to those who need it, and is much more efficient. It’s not perfect since lots of the poor work on a barter system – and they may not be filing taxes.
_The Undercover Economist_ has a few chapters on this. It’s a great read.
January 26th, 2007 at 7:08 am
Josh, thanks for the math. But please think about your premise real hard. If you raise the MW, where does the money come from?
January 26th, 2007 at 9:02 am
Jack, don’t be patronizing. Obviously the money comes from businesses — the folks with the multiyear string of double-digit profit growth, you may remember — and from there it comes from their profits or passthrough. But study after study has shown that your fearmongering about the impact of MW increases just isn’t true. Small businesses don’t collapse; consumer prices don’t skyrocket.
For instance, Aaronson, French (2006) is only the latest to show that minimum wage increases don’t have nearly the passthrough effect you think, even in the most MW-worker-dependent industries (i.e., fast food). They found that a 10 percent increase in the minimum wage led to an increase in fast-food prices of all of 0.7 percent. That’s a couple pennies a Big Mac. Even in MW-worker-dependent industries, labor is still a fraction of their overall costs.
Again I ask: If there’s even one micron of truth to all the scaremongering, why have none of your predictions come true for previous MW increases?