The Case For a Higher Minimum Wage Opinions surrounding the minimum-wage debate run the gamut. Those on the far right politically say that we don't need one at all, that the free market should set wages. Those on the far left say that it is a moral duty to provide a living wage to all workers. Others stand somewhere in between the two.
First of all, let me say that a completely free market, one free of any government oversight or regulation, does not exist in the world today. Pure forms of economic and political systems have rarely, if ever, even been tried. A free market is based upon the law of supply and demand. The level of demand for a product or service will influence the price in a way that causes producers to adjust their supply and vice versa until the two reach equilibrium. This should be a dispassionate process in order for resources to be allocated to where they are needed most. When emotions are involved the market becomes less than efficient.
Applied to the minimum-wage debate it states that employers and employees would eventually reach an equilibrium wage for each job. The theory states that neither employees nor employers would be forced to accept a situation they do not want. They may not be happy about the equilibrium wage but, if so, they can opt out of the situation altogether.
Here is where the law breaks down when applied to the labor market. Workers often don't have a choice. Having a job is a means of survival that overrides any rational thought about whether or not a wage is fair.
Thus, the demand side forces for reaching an equilibrium price of labor satisfactory to both sides breaks down. The demand side further breaks down when people continue to have babies even though the price that is being paid for labor might be dropping. Clearly, people have other things in mind when deciding to start a family. In addition, it takes a minimum of sixteen years and nine months before a decision to have a child results in a new member of the work force. Such inefficiency is abhorred by the free and efficient market.
Finally, another factor increasing the supply of labor is that over the last several decades low to middle incomes have not kept pace with inflation. Many of the higher-paying manufacturing jobs have gone overseas and been replaced by lower-paying service jobs. This puts pressure on more people to enter the work force as it becomes harder and harder to support a family on one income. The new reality of our economy is that employers, in general, have learned to get by with fewer employees.
This can be readily seen on Wall Street today. Corporate profits are rising to healthy, pre-recession levels and the cash coffers of many firms are swelling. Like it or not, a six percent to seven percent unemployment rate could be here to stay for a very long time, perhaps decades, unless some new industries are developed that require large numbers of workers. Some argue that many of the jobs paying minimum wage aren't even worth that much. But, if we have any moral obligation to provide our workers a subsistence wage that will keep them from starving and/or living on the streets, then we need a minimum wage.
WHO EARNS MINIMUM WAGE?
Minimum-wage workers are a varied bunch. Slightly less than one-third are teenagers. Most under the age of 25 are enrolled in school. 80% are over the age of 20.1 Just over half are 25 or over.2 Average household income for those making the minimum is $42,000, well below the national median of $51,000 but well above the poverty line.1
So that begs the question, how many minimum-wage workers are living under the poverty line and, therefore, the ones who are in the most need of an increase? Twenty-two percent of those on the minimum wage live at or below the poverty line. ($22,350 for a family of four.2 ) For those on the minimum wage that are the major breadwinner in the household it is clearly difficult to get by. The current national minimum wage of $7.25 just barely does keep those workers from starving or living on the streets. Even then, they survive only because there are government-welfare programs providing them with the necessities of life.
That fact highlights a real concern. To what extent will increasing the minimum wage lift some people off government assistance thus negating some or all of the benefit they might receive from the higher wage? Minimum-wage work is largely restricted to service industries. 2.1% of hourly workers and about 1.25% of the entire labor force is making the minimum wage.1 (Although this number varies greatly from study to study.) One has to remember that statistics about the minimum wage do not include anyone making just above or below the minimum. Therefore, many more would be positively affected by an increase.
A LIVING WAGE
If a typical fast-food restaurant were to raise their minimum wage to $10.10 per hour, as President Obama is suggesting, it would increase expenses about $24.50 per hour for the restaurant. If the restaurant serves one meal per minute it would amount to an increase of 41 cents per meal. If that increase were passed on to the customer it could cause a decline in sales and thus possibly result in layoffs. That is a conundrum that managers face. There are many ways to adjust to increased expenses in a business. Those who find the most efficient and creative ways will thrive. Those who don't, won't.
On the other hand, if the federal minimum wage were increased it would apply to all restaurants and therefore, not negatively impact any individual restaurant if all merely passed on the increase to the customers. Would sales go down after an average 41-cent increase per meal? Not likely. I for one, would gladly pay an extra forty-one cents if it meant the workers' pay would go up to $10.10 per hour. Such an increase would bring an annual salary for a full-time minimum-wage worker up to about $20,200 from its current $14,500. Even though the poverty level for a single person is set at $11,490, that is still not what could be considered a living wage. A living wage is one considered to be enough to pay for the bare necessities of life like rent, food, and clothes. The likelihood of a higher minimum wage than the $10.10 proposed by the President is very low for political reasons. Heads of households earning such low incomes can supplement their income through a variety of other government-assistance programs but even then life is difficult for this demographic.
The decision to have a minimum wage is a moral one. How high of a minimum wage to have is not only a moral one but an economic one. Are we as people willing to pay the prices it would take to have a living wage for our lowest-paid workers? Sadly, it is also a hotly contested political issue. One would think that conservatives would favor a minimum wage high enough to get people off government-welfare programs. But this is not the case. Their distaste for "handouts" and imposing perceived burdens on employers far outweighs their desire to shrink the size of government and in turn the federal-budget deficit. Conservatives' concern about a higher minimum wage is more about their concern for losing campaign contributions from very wealthy donors who stand to lose if the wage is increased, not about their concern for minimum-wage workers losing their jobs.
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