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Raising the minimum wage is the least we can do

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From http://www.flickr.com/photos/7278633@N04/10470768135/: NYC Rally To Raise The Minimum Wage
NYC Rally To Raise The Minimum Wage
(image by The All-Nite Images)

We're once again caught up in a debate over the minimum wage. Although the wage has often been raised since it was first enacted in 1938, it was never indexed to inflation. Thus, as soon as Congress sets the wage, inflation immediately begins to erode its value and supporters must soon again fight conservatives to get an upward adjustment.

Congress last adjusted the minimum wage in 2009, to $7.25. It reached its highest level in 1968 at $10.77 (in 2013 dollars). So today's wage is $3.52 less than in 1968. The 1968 wage yielded an annual full-time salary that was above the poverty level for a family of three, whereas the current wage yields an annual income below the   poverty level for a family of two ( Economic Policy Institute ). 

   Congressional Democrats have introduced the Fair Minimum Wage Act, which would raise the federal minimum wage to $10.10 by 2016, and then index it to inflation. The bill's prospects are bleak in the GOP-controlled House, and it's doubtful that Senate Democrats could find five Republican votes to overcome a likely GOP filibuster. 

Two-thirds of Americans in a recent ABC News/Washington Post poll support increasing the minimum wage. The average recommended wage among these supporters is $10.25, a little higher than the amount being proposed in the Kentucky legislature and in Congress.

   In spite of this popular support, Republicans remain opposed to raising the minimum wage. In addition to their reflexive hostility toward government intervention in the market, they claim that raising the minimum price for labor will cause firms to hire fewer unskilled and low-skilled employees. They support their argument with a shallow interpretation of the Law of Demand--a fundamental principle in economics. 

   This law says: all else being equal, as the price of a product increases, quantity demanded falls. Therefore, conservatives say, the higher the minimum wage, the less employers will buy low-skilled labor. However, the facts don't support this claim. 

   Over 600 economists, including eight Nobel laureates, have sent an open letter to the President and congressional leaders in support of the Fair Minimum Wage Act. They say that "the weight of evidence" now shows that "increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers." Why might this be? 

Notice the very important proviso in the Law of Demand: "all else being equal." Consider the effect of a minimum wage hike on a fast-food restaurant where most employees work at or near the minimum wage. How will the owner respond? 

Perhaps she has found that people willing (or desperate enough) to work at the minimum wage aren't well-motivated, and don't keep their jobs for very long. She finds that higher-paid workers are better, more productive ; and she doesn't have to spend money and time constantly training new hires. She has learned what Costco discovered: "You get what you pay for.   Costco pays their employees a livable wage and gets sales per employee at double what Walmart subsidiary Sam's Club gets from their employees who work for lousy pay" (Rick Ungar, Forbes ,   4/17/2013).

   Moreover, since many potential customers have also received a wage increase and have a bit more to spend, business increases at her restaurant. So, going back to the proviso in the Law of Demand, "all else" was NOT equal. The growth in consumer demand and employee productivity have made her business more profitable than it was before, and she keeps all her employees. 

   For similar reasons, Glenn Murphy, Chairman and CEO of Gap Inc., announced that his company will make a "strategic investment" in its 65,000 employees by raising its minimum wage to $9 in 2014 and to $10 in 2015. He said that this decision "will directly support our business, and is one that we expect to deliver a return many times over." 

   It turns out that treating workers with respect and decency is also sound economics. As Zeynep Ton explained in "Why "Good Jobs' Are Good for Retailers" ( Harvard Business Review ), when retailers such as Trader Joe's and Costco "view labor not as a cost to be minimized but as a driver of sales and profits, they create a virtuous cycle. Investment in employees allows for excellent operational execution, which boosts sales and profits, which allows for a larger labor budget, which results in even more investment in store employees."

   By opposing a minimum-wage increase, Republicans are in effect arguing for a taxpayer-funded government handout to companies paying minimum wages. For example, according to the National Employment Law Project "the overwhelming share of jobs in the fast-food industry pay low wages that force millions of workers to rely on public assistance in order to afford health care, food, and other basic necessities."  

McDonald's and Walmart would lose much of their workforce without this public assistance. Republicans are both inconsistent and callous in arguing against a minimum wage increase while also pushing for substantial cuts in food stamps and other welfare programs. 

There is hypocrisy in their professed concern over job losses from raising the minimum wage. They have fastened on a Feb. 18 CBO report which states that the   Fair Minimum Wage Act could result in 500,000 fewer low-wage jobs. However, this report also claims that the Act would raise the salaries of 16.5 million people, and lift 900,000 above the poverty line.

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I'm a retired philosophy professor at Centre College. I also am a regular columnist for our local paper, The Danville Advocate-Messenger, as well as the Lexington Herald-Leader. My last book was Posthumanity-Thinking Philosophically about the Future (more...)
 
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