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For several years now we have seen slow but steady employment growth. While that trend tends to mean we have a strong economy a concern still lingers as wages have lagged behind, increasing at rates lower than inflation. Some have suggested specifically to help those who are in poverty, we should raise the minimum wage which currently stands at $7.25/hr.
It seems simple doesn't it? Just force employers to pay people more. Right now labor groups and liberals across the country have called for at least a $10.10/hr minimum wage. Polling consistently shows that across the spectrum there is wide support for raising the minimum wage.
Others like Senator Bernie Sanders a leading candidate for the Democratic Nomination for president. have called for upwards of $15/hr, their argument states that if today's minimum wage kept up with worker productivity it would be over $21.72/hr.
In a press release introducing his bill to raise the federal minimum wage to $15 an hour Senator Sanders said "Increasing the minimum wage would directly benefit 62 million workers who currently make less than $15 an hour, including over half of African-American workers and close to 60 percent of Latino workers. If the minimum wage had kept up with productivity and inflation since 1968, it would be more than $26 an hour today."
It is true that if the minimum wage from the 1960's had kept up with inflation, the minimum wage would be $10.52, but the 1960's was the highest point (inflation adjusted) for the minimum wage.
Opponents of the minimum wage like Senator Ted Cruz, also a presidential candidate have said that the real cost in the minimum wage is lost jobs. That in order to increase wages we need to focus on increasing the number of high tech manufacturing and energy jobs.
“Those who are being hurt the most in the Obama economy are the most vulnerable among us – young people, Hispanics, African-Americans and single moms,” Sen. Cruz said. “They are the ones paying the price for the great stagnation in which we find ourselves. The undeniable truth is if the president succeeded in raising the minimum wage, it would cost jobs from the most vulnerable.”
“The discussion before this chamber is whether to raise the minimum wage to $10.10 an hour,” Sen. Cruz continued. “But, even if it passed, the real Obama minimum wage is zero dollars and zero cents. Far better than the promise of $10.10 an hour, is $46.98 – the wage Americans can earn in the oil and gas industry. We ought to come together with bipartisan unanimity to say we will stand with the American people to bring millions of jobs, raise median income and make it easier for people who are struggling to achieve the American Dream. We should all come together and vote on the American Energy Renaissance Act, to remove government barriers and open up new federal lands and resources to develop high-paying, promising jobs that expand opportunity.”
A few facts first, only about 3 percent of those who work are working for the federal minimum wage. Many states have set higher minimum wages than the federal one. A very small percentage of those are supporting a family with that income.
So why don't we raise the national minimum wage? Wages have stagnated which has limited the growth of our economy and has weakened the middle class. Why not raise it to $50 an hour and give the vast majority of Americans a raise? There are several reasons opponents to increasing the minimum wage give for not increasing it.
According to the Heritage foundation, here are several quick facts about the minimum wage:
- Studies find raising the minimum wage does not reduce poverty.[1] It is a completely ineffective anti-poverty policy.
- The primary value of minimum-wage jobs is that they are learning jobs. They teach inexperienced employees basic employment skills that make them more productive and enable them to earn raises or move to better jobs.
- Over half of all Americans started their careers making within $1 of the minimum wage.[2] Few stayed there long.
- Two-thirds of minimum-wage workers earn raises within a year—without the government’s help.[3]
- Correctly adjusted for inflation, the minimum wage currently stands above its historical average since 1950.[4]
- The minimum wage hike sponsored by some Members of Congress and supported by President Obama would raise the minimum wage to an unprecedented level—one-seventh above its inflation-adjusted all-time high.[5]
- This would cause employers to reduce hiring, leaving fewer people employed.[6] Macroeconomic modeling shows the proposed minimum wage increase would eliminate 300,000 jobs.[7] That means fewer opportunities for unskilled workers to get started in the labor market and move their way up.
- When businesses have to pay higher wages, businesses hire higher-skill workers, freezing the least productive, most disadvantaged workers out of the job market.[8][9] Consequently minimum wage hikes harm the very people that proponents of the laws most want to help.
- Primarily Affects Younger Workers Without Family Responsibilities
- Only 2.9 percent of wage earners earn the federal minimum wage.[10][11][12]
- Most minimum-wage earners are teenagers or young adults, not heads of families.
- Over half of minimum-wage earners are between the ages of 16 and 24.[13]
- Two-thirds work part time (defined as less than 35 hours a week).[14]
- The average family income of a minimum-wage worker is $53,000 a year, less than the national average of $79,500 a year but well above the poverty level.[15]
- Two-thirds of minimum-wage workers live in families with incomes above 150 percent of the poverty line.[16]
- Just 4 percent of minimum-wage workers are single parents working full time, compared to 5.6 percent of all U.S. workers.[17]
- The Obamacare employer mandate is already scheduled to raise the cost of hiring less-skilled workers. When the mandate takes effect in 2015 the minimum cost of hiring a full-time worker will rise to $10.30 an hour. That includes the minimum wage, employer payroll taxes, and the employer mandate.[18]
- From the employer’s perspective the cost of hiring workers has increased, but the additional money goes to the government instead of the employees.[19]
- The proposed minimum wage increase of $10.10 an hour would bring the minimum cost of hiring a full-time worker—including the Obamacare penalties—to $12.71 an hour.[20]
On the other side the White House in a press release stated the following:
"The Economic Case for Raising the Minimum Wage from White House
The inflation-adjusted value of the minimum wage has fallen by more than a third from its peak and is currently about twenty percent less than it was when President Ronald Reagan first took office in 1981. The minimum wage helps support family incomes, reducing inequality and poverty—especially for female earners. But as the real value of the minimum wage been allowed to erode, it has stopped serving this important purpose. The minimum wage is now just 36 percent of the average wage and trending lower, as those at the low end of the income distribution are in increasing danger of being left behind while the economic recovery continues to unfold.
Raising the minimum wage to $10.10 per hour would benefit a wide range of families. New estimates from the Council of Economic Advisers find that when it is fully phased in 28 million workers would see a raise, including 19 million making less than $10.10 and another 8 million with wages just above $10.10 who would benefit from the ripple effect. These wages increases would be progressive with nearly half of the benefits going to households making under $35,000, but they would also benefit millions of middle class families, for example ones in which a spouse worked part-time at the minimum wage to help the family’s overall income. In total more than half of the workers that benefit are women. Only 12 percent of minimum wage beneficiaries are teenagers and the remainder of the beneficiaries include a wide cross section of families with children, couples, and others.
Partly as a result of the more than one-third reduction in the inflation-adjusted minimum wage since 1967, research has found that the poverty rate based only on market incomes has not fallen since the 1960s. Fortunately, as discussed in this recent Council of Economic Advisers report, expansions in rewards for work like the Earned Income Tax Credit and in programs like the Supplemental Nutrition Assistance Program have contributed to a significant reduction in the poverty rate. Thus, while it is critically important to support these programs—including extending emergency unemployment insurance, ensuring robust nutritional assistance, and making permanent the enhancements to the Earned Income Tax Credit and child tax credit—we also need a renewed emphasis on measures that reduce poverty by improving market wages. Raising the minimum wage is the most direct and immediate policy in this regard.
The President supports raising the minimum wage to $10.10 an hour in three steps (and also raising the minimum wage for tipped workers), ensuring that wages and tax credits are sufficient to lift a family of four with one full-time worker above the poverty line. After raising the minimum wage to $10.10 an hour, the proposed legislation would also index it to inflation going forward, so that workers earning the minimum wage never again see significant erosions in their inflation-adjusted wages.
Finally, as one recent review of minimum wage research published since 2000 concluded, “The weight of that evidence points to little or no employment response to modest increases in the minimum wage.” Many economists now believe that a substantial portion of the cost to employers of minimum wage increases is offset by savings from reduced employee turnover and higher worker productivity. Moreover, in the short-run in an economy that is still demand-constrained, raising the minimum wage will increase the purchasing power of a vital segment of workers and contribute to stronger overall economic activity."
Wages, and especially the minimum wage are a balancing act. There are more options available other than raising the federal minimum wage that some are considering. Several states have considered bills to effect greater limits on the widening gap between CEO and average worker pay. Some have suggested that the issue should be dealt with on a state by state or even city by city basis, allowing cities like Seattle to have a higher minimum wage while not affecting states where the cost of living is much lower.
Governor John Kasich of Ohio who is currently a presidential hopeful expressed why he feels a state by state option for raising the minimum wage might be best:
"We’d all like to see it go up, but we don’t want to see the unintended consequence of people losing their jobs," Kasich said. "Back in Columbus, the head of Wendy’s said that if these wages go up too high, they’re just gonna put kiosks in and people won’t be there to take orders. It's about balance. We're doing fine in Ohio. I would prefer for the states to deal with it, at this point."
As we continue to debate this situation, we need to remember that this issue can have massive effects on the economy as a whole. For a stable economy we need to see wages rise. Companies will always weigh the cost of employees to their profit margin and jobs may be lost. The debate for the most part though will remain whether increased wages should come from the market itself, or being mandated by the government — whether that be on city, state, or federal levels.
