Minimum Wage War: Is a Pay Hike Good for the U.S.?

Pros & cons of boosting worker pay for lower-class Americans

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Minimum Wage War: Is a Pay Hike Good for the U.S.?

FOR THE MINIMUM WAGE

ON JOBS: The Center for Economic and Policy Research, among others, has researched localized minimum wage increases in areas like San Francisco and Santa Fe and found no negative impact on total jobs.

ON POVERTY: The CBO found that earning a $10.10 hourly wage would bring 900,000 people above the poverty line (now $24,100 annually for a family of four). Even a $9 wage would help 300,000 people escape poverty, giving them more security as well as more opportunity for upward mobility.

ON PRICES: Minimum-wage labor actually isn’t a big issue for most businesses, and a 10% rise in wages won’t result in a 10% rise in prices. Data from the Journal of Economic Surveys, in fact, shows a mere 0.4% increase in prices in most cases when wage costs rise 10%. And bigger-picture, a 0.4% increase is below historical norms for price inflation.

ON SKILLS: Worker productivity has soared without a commensurate increase in pay. That’s simply not fair, and it’s time compensation closed the gap. Furthermore, the CEPR argues that even businesses with low-skilled workers would benefit from a minimum wage increase via improved efficiency and lower turnover. That helps skill development and keeps employer training costs low.

ON HISTORY: The minimum wage in 1968 was $1.60 per hour. Adjusted for inflation, that equals $10.71, according to Bureau of Labor Statistics calculations. The proposed increase to $10.10 would still be less than that.

ON FREE MARKETS: Even in a free market, there should be limits to protect businesses from putting profits above everything else. We protect the environment from toxic pollutants and protect patients from untested medical treatments and unlicensed doctors. Protecting workers with a fair, living wage and protecting the economic opportunity of all Americans is an equally important role for government to play.

AGAINST THE MINIMUM WAGE

ON JOBS: The CBO estimates that 500,000 jobs would be lost if the minimum wage was raised to $10.10. Thus, those with jobs might make more, but more people would find themselves with nothing instead of something.

ON POVERTY: Benefits from food stamps to the Earned Income Tax Credit are big taxpayer expenses specifically designed to help the poor. A 2012 Pew Research Center report showed that 55% of Americans received some form of government aid during their lifetime, proving we can aid the poor in many ways beyond wages.

ON PRICES: The price of a TV made in China and sold at Best Buy might not change much if cashiers make a bit more money. But in a host of unskilled service jobs, the cost is almost 100% labor. These include yard work, cleaning, waiting tables and home healthcare. While the average price increase might be modest, some costs would indeed surge.

ON SKILLS: To be blunt, unskilled workers simply aren’t worth as much … and thanks to Obamacare, they’re already more expensive to hire than in years past. It’s not fair to give a minimum-wage worker the same compensation, and it discourages professional development both for entry-level workers and those who once were above them but now make minimum wage by mandate instead of merit.

ON HISTORY: “Real” minimum wages might be down from peak levels, but they’re well within historical norms. The real minimum wage is higher or on par with its inflation-adjusted level from the mid-1980s to the mid-‘90s, for example.

ON FREE MARKETS: Some modest regulation can be implemented without impeding business. But something as fundamental as what employers should pay employees is not up to Washington. If McDonald’s offered just $1 an hour, would anyone apply? Doubtful. And that’s why some entry-level jobs pay more than the current minimum wage even now — because that’s what the specific job and the local labor market demand.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.


Article printed from InvestorPlace Media, http://investorplace.com/2014/03/minimum-wage-war/.

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