Recently, fast-food industry and retail workers from big box stores like Wal-Mart have been staging protests and strikes all over the country arguing that today’s federal minimum wage standard is far too low and has not kept pace with inflation for far too long. As a result, they say, far too many of them are working full-time and then some—even in as many as two or three jobs—and yet they still can’t make ends meet.
It’s just the latest development in a now decades-old debate over what constitutes a sufficient living wage in this country and what the implications will mean for our economy if we raise the minimum wage to meet that standard, whatever it may be.
One thing is for certain, the current federal minimum wage rate of just $7.25 per hour, which translates into little more than $15,000 per year for a full-time worker — as well as the federal minimum wage for tipped workers of just $2.13 per hour — has not gone up a penny in more than twenty long years.
A Call to Action on Income Disparity
Politicians on both sides of the aisle have called for minimum wage increases off and on throughout the years, most often when it seemed like a smart move both politically and economically. President Obama is no exception.
His recent comments in support of raising the minimum wage are provoking tremendous debate while also fueling the growing grassroots movement for change that is being felt in many towns, cities, counties and states across the country. In fact, 21 states and the District of Columbia will have minimum wages above the federal minimum wage in 2014.
“For over a decade, working Americans of all races have seen their wages and incomes stagnate, even as corporate profits soar, even as the pay of a fortunate few explodes,” the President said in a speech this past September. The nation’s growing income gap, he says, is the “defining challenge of our time,” making it without a doubt among the most noteworthy issues for debate leading up to the 2016 presidential election.
In diving into the arguments for and against a minimum wage increase at this stage of the game and given the current state of the economy today, only one thing is for certain. It’s complicated.
Context and Historical Perspective
In his 2013 State of the Union address, President Obama called for a raise in the federal minimum wage to $10.10 per hour by 2015. This is in keeping with the proposal set forth shortly thereafter by Senator Tom Harkin (D-IA), Chair of the Senate Health, Education, Labor and Pensions Committee, and Representative George Miller (D-CA), the top Democrat on the House Workforce Committee, titled the Fair Minimum Wage Act of 2013.
It’s goal? To work to restore the minimum wage to its “historic level,” making up for decades of what it calls “erosion,” and then to have it keep pace with the rising cost of living.
But what does that all mean exactly?
Here’s some history and context to help us put things in perspective…
In 1968, at the height of America’s post-war economic prosperity, the minimum wage in this country was more than $10.50 when adjusted to current dollars. Setting the rate to as much as $12, which a number of pundits sight as reasonable, would represent a real rise of a mere 11 percent over a 45-year period of time. Most would argue that hardly seems unreasonable given that worker productivity is up by well over 100 percent since back in the day.
Additionally, it’s a fact that the top 10 percent of earners in the U.S. have gone from representing a third of all income in the 1970s to as much as half or more today. Furthermore and almost unbelievably, the top 1 percent of high-income earners accounts for 20 percent of all the wealth in this country.
That income disparity is widening with each passing year.
Public Support for Raising the Minimum Wage
Just hearing numbers like those, it’s easy to imagine that most Americans are in favor of raising the minimum wage. And they are.
Support for raising the federal minimum wage standard is actually quite widespread and continues to grow in popularity.
According to findings from a survey of more than 800 likely voters in the 2012 general election conducted by Lake Research Partners, 56% of them said they believe that increasing the minimum wage would help the economy. Nearly three-quarters of them support raising it to $10, and 73% favor the idea of then indexing it to inflation (58% of them strongly).
Moreover, that level of support crosses party lines to a somewhat shocking degree. Democrats, it’s no surprise, support the idea of a minimum wage increase at the highest level of 91%, while Independents stand firm at 74%, and Republicans come in at a not-too-shabby 50%.
Balancing the Ethical and the Economical
There’s little question that this is more than likely an ethical and moral issue for many at this point. All it takes is a watching the nightly news or simply paying attention to the growing needs of so many in our own communities to know we have a problem where growing income disparity is concerned.
But just because an issue prompts a visceral and emotional response to “do the right thing,” does that make that “thing” economically viable or even sound? What if the seemingly simple answer isn’t the best one after all?
When it comes to this issue, for every person who thinks raising the minimum wage is a good idea, there’s another who claims it actually could end up hurting those it’s designed to protect, and that’s something we also have to consider.
Who’s right and who’s wrong? That’s a tough one. All we can do is give you the arguments on both sides and let you make the call. But before we do, it’s important to note that for virtually every point made here, either pro or con, there is a research study of some kind that either backs it up or tears it all apart.
Like I said, it’s complicated!
Raising the Minimum Wage: The Pro Side of the Debate
When it comes to raising the minimum wage, here are just a few of the biggest arguments for doing so:
• It spurs economic growth — Because America’s low-wage earners and their families tend to spend every dollar they earn, raising the minimum wage would constitute an enormous and even somewhat permanent economic stimulus package of sorts, one funded entirely by the private sector.
• It reduces America’s growing need for a social safety net — Ensuring America’s working poor have more money to spend will enable them to increase their overall standard of living, therefore reducing the need for food stamps, the Earned Income Tax Credit, housing subsidies and other taxpayer-funded assistance. Ultimately, raising the minimum wage will save billions of tax dollars each year.
• It lowers turnover — There is some good evidence to suggest that higher wages result in lower turnover, which then results in overall increased productivity that favors employers.
• It creates jobs — The assertion on the part of proponents is that raising the minimum wage actually will create jobs, not eliminate them as so many opponents contend. In fact, estimates by the Economic Policy Institute are that the Fair Minimum Wage Act of 2013, if implemented, would generate $32 billion in new economic activity, which would then result in upwards of 140,000 new full-time jobs.
• It is simply the right thing to do — While the economic arguments either for or against raising the minimum wage are incredibly important, there is a moral and ethical argument to be made as well, especially in a society like ours where we pride ourselves on our democracy, our values and our ethics. Writing for Reuters earlier this month, Zachary Karabell addressed what may very well be at the heart of this very issue for many: “In China today,” he points out, “one of the primary issues is the widespread revulsion against the corruption and enrichment of the elite. American companies may be profit engines, but they have a responsibility to the communities in which they operate.”
The Ugly Truth
Here’s the ugly truth, whether we like it or not...
While our economic well-being does seem to be improving somewhat, and we are the healthiest horse in the global glue factory, the U.S. is still not in a great place on the recovery front. So simply doing what feels morally and ethically right may be a luxury we just can’t afford right now.
More importantly, what if raising the minimum wage actually might hurt the very people it’s trying to help the most? Is that possible? Is it probable? Some people, many of them credentialed economists, certainly think so.
Raising the Minimum Wage: The Con Side of the Debate
For each pro in every argument there’s usually a con, and the minimum wage debate is just like any other in that way. Those who believe that raising the minimum wage is a bad idea often count these arguments among their strongest:
• It increases prices — To cover the higher cost of labor, the money has to come from somewhere. There is no such thing as a free lunch. Businesses and companies have three choices: 1) They can disappoint their investors in the form of lower profits, 2) They can hire fewer workers, or 3) They can increase their prices. Most experts seem to think that the vast majority of businesses and companies that are most affected by a potential minimum wage increase will choose the last option. As for what and how much the market can and will bear in this regard, it’s anybody’s guess. Additionally, opponents claim, increased prices will reduce overall sales and foot traffic at a time when America’s businesses are most vulnerable.
• It reduces the number of entry-level jobs for less skilled workers and young people — Entry-level jobs are not designed to sustain a family of three or four, opponents of raising the minimum wage argue. Their purpose is to enable individuals to get their foot in the door and work their way up to something better. If minimum wage makes these kinds of jobs more interesting to second-income earners or more skilled workers, then less skilled workers and young people who are just starting out will have far fewer employment opportunities.
• It encourages automation to take the place of workers — With so much technology at our disposal, an increase in the minimum wage may be all the impetus a small or even a larger business needs to put computers in place of people, especially in the food-service industry. In fact, a number of larger restaurant chains like Applebee’s and Chili’s are already working to incorporate table-side electronic ordering into their establishments.
• It cuts the number of hours people can work and makes them work harder — There is some evidence to suggest that businesses will simply make due with fewer workers if they have to pay them more, which ultimately will have a negative impact on the number of hours that lower-skilled workers can work. And for those who do land jobs at the higher hourly rate, they may have to work a whole lot harder than they did before to make up for the lost labor hours of others.
• It places an undue burden on disadvantaged families — Yes, there’s a moral and ethical argument to be made on this side of the minimum wage debate as well. More specifically, because it’s the fast-food restaurant and retail workers that have the lowest paid workers for the most part, and they’re the ones that often want and need the kinds of products and services that might go up to cover any minimum wage increase the most, it will hit them the hardest. Additionally, it will greatly lessen their ability to access the social safety net in cases where the increased wage is still not enough to get by.
Make Your Voice Count
Given all the recent media coverage on this issue and the exhaustive number of opinion pieces both for and against raising the minimum wage, it’s easy to get overwhelmed. Additionally, findings from so many studies and research efforts support so many various sides of the argument that it can be really difficult to take a firm and defensible stand one way or the other.
The best each one of us can do is to stay informed as much as possible and make our voices heard when given the opportunity.
Speaking of which…
Where do you stand on the issue of raising the federal minimum wage standard and why? Tell us what you think!
If you’d like more information on the Fair Minimum Wage Act of 2013, you can find it here at http://www.raisetheminimumwage.com/ now!