Five Points: Increasing the minimum wage

1) The 2004 poverty rate in the US was 12.7%, an increase from 12.5% the previous year  The US Census Bureau has more information on poverty at their web site. 12.7% isn't just a nominal percentage, it's millions of people - adults and children.

2) In many areas of the country, working full-time at the minimum wage still isn't enough to support a family. Use the calculator here to determine how much a family of four needs to live a decent life, and compare that to the income from a two-worker minimum wage family. If a two-parent household worked full-time, all year at minimum wage they would make $21,424 ($5.15/hr * 2080 hours/yr * 2). In Cincinnati, a livable family budget is about $45,000/yr; in Boston it's close to $65,000/yr; in Los Angeles it's $48,000/yr. In rural Arkansas it's $32,000/yr.

3) Big companies that rely on lower wage jobs – services, fast-food, etc – could most likely afford a labor rate increase. For example, in 2005 McDonald’s had $2.6 billion in net profit. Only 17% of small businesses say that raising the minimum wage would have a negative impact on them (June 2006 issue of Fortune Small Business, not yet online – but taken from here).

4) 83% of the population favor an increase in the minimum wage.

5) Fair wages are moral, and the Catholic church has advocated them for a while now. For example, from the encyclical Mater et Magistra published in 1961 by Pope John XXIII:

We therefore consider it Our duty to reaffirm that the remuneration of work is not something that can be left to the laws of the marketplace; nor should it be a decision left to the will of the more powerful. It must be determined in accordance with justice and equity; which means that workers must be paid a wage which allows them to live a truly human life and to fulfill their family obligations in a worthy manner.

Comments

[Jeff]

Bravo! Well said, Steve. Not only is the time long overdue for a raise in the minimum wage, but there should be serious talk of a "living wage" too. Of course, how that can be done without triggering widespread inflation, I don't know. Businesses will just pass the added costs along. Something has to change. All of the focus on globalization has been on the rights of corporations and to facilitate the ease of moving capital around the world. Something needs to be done from the perspective of the rights of labor, to stop exploitation and this race to the bottom.

[Liam]

Good post Steve. Using the calculator, I now know that I am officially poor. Grad school isn't forever.

Employers have always voiced doom whenever any suggestion has been made to improve the lives of employees -- such as a 40-hour week or child-labor laws. Still, when these laws are passed, the economy does not tend to suffer.

Of course, added to the problems associated with a living wage is the massive crisis in health care, which cannot be solved unless Americans are willing to revise their prejudices about the role of the state, and unless voters make their representatives understand that the interests of working- and middle-class Americans are more pressing than the interests of the health care industry.

["omis"]

Liam--with increased wages, perhaps more families would be able to purchase health insurance, providing it was still affordable.

Steve--A question, building on your point on corporate opposition, if a company, no matter how small, has to rely on poverty-level wages to operate, is it a morally sound business, and if not does it have any natural right to continue to operate?

[Talmida]

Thanks for posting this, Steve. It got me curious about the situation here in Canada (where my kids have been trying to find work that pays enough per hour to pay for tuition in the fall).

I found out that the NAPO (National Anti-Poverty Organization) has a campaign in Canada to make the minimum wage a living wage. It has all sorts of information, as well as factsheets, workshops and other links available on its website. In Canada, minimum wage is a provincial matter and ranges from 6.50 to 8.50, I think. NAPO hopes to see it raised to $10.00 across the country.

Here too, people earning minimum wage for 40 hours a week fall well below the poverty line.

[Steve Bogner]

Jeff, I don't think that increased wages would cause significant inflation. If increased too much, too quickly then the markets would have a harder time adjusting, making inflation more likely; but we can control the timing and the increase, so it's up to us (collectively). And offsetting the increase in price pressure would be an increase in consumer demand because lower-wage families would have more money to spend. At least that's how I see it.

Liam - Healthcare will probably be the subject of another 'Five points' in the future!

Omis - That's a good point. When I hear companies complain about not being able to survive if they had to pay higher wages (or healthcare), a few thoughts comes to mind: 1) Maybe their business model needs updating; 2) Maybe they shouldn't be in business anyway; 3) whiner-babies. Markets are generally efficient, and will take the easiest way to a profit; like water flowing through the lowest path. As long as we continue to sanction low wages (and no healthcare), companies will tend to take that path towards profitablity.

Talmida - I was wondering about the situation in Canada. In the US, the minimum wage also varies per state. Some communities have passed living wage ordinances, and while I really like living wages, it gets burdensome for businesses to track & comply with lots of local regulations. Pulling the living wage laws up to the state level would be better for all, in my opinion.

[Don]

I like your post and have put a link on my blog to it. I can't remember where I read recently that raising the minimum wage would reduce poverty,welfare and unemployment. A rising tide lifts all boats.

[Jim]

Per your figures, I am, between my pension and the job with Spec-Ed, border-line with not much choice other than to get another job somewhere down the pike. Amazingly, I can think of other options: such as change my eating habits, cut out a few vacations, and learn to live on less.........

[American Phoenix]

What happens when, the minimum wage having been raised, businesses then employ less people, putting more people out of work, causing rising unemployment and more poverty?

What happens when employers decide to go overseas, taking jobs with them? This is already happening in the agricultural, manufacturing and electronics industries, to name only a few. Gilroy, CA, which used to grow most of the United States garlic. Now it's nearly all grown in China with only about 200 or so acres left in Gilroy. Other industries have had to fill the gap in lost jobs.

I'm all for responsible employers paying a living wage, but we can't ignore basic economics either.

[Steve Bogner]

DOn - Yes, I agree about the rising tide effect.

Jim - Changing lifestyles certainly can make a difference. A big part of the budget in that calculator is for housing - so once it's paid for that gives people more flexibility.

Hi AP - Thanks for commenting! I remember reading in some encyclical somewhere that the economy ought to work for the person, not the person working for the economy. If certain parts of our economy do rely on the presence of companies who can only pay minimum wage to stay afloat, and that minimum wage isn't enough to live on, then that sounds socially unjust to me. It's backwards. And I understand about job losses and shifting employment (from personal experience), but that is also a natural part of a market-economy. I believe we have a lot of smart people who could implement increased wages in a way that works, and our economy is strong enough and creative enough to handle it; we sell ourselves short too often (in my opinion).

["omis"]

AP - jobs are already going overseas even with lower-than-livable wages. And I'm not convinced that the "employers will just hire fewer people" argument is entirely realistic.

Nonetheles, the point that the economic realities are complex are well taken, but I really think they can be addressed in a just manner.