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

by Jeff Reeves | March 4, 2014 8:15 am

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

Raising the minimum wage is an issue that is divisive and complicated.

The latest salvo: A Congressional Budget Office forecast[1] that shows a minimum wage increase to $10.10 per hour would cost half a million jobs … but lift 900,000 Americans above the poverty line and put them on more secure financial footing.

WagesWashingtonArticle2 Minimum Wage War: Is a Pay Hike Good for the U.S.?[2]

Data like this proves that neither side is “right,” and that any policy change will have significant impacts on the American workforce and economy — not necessarily all in one direction. So that likely means our do-nothing Congress will simply pass the buck rather than think critically about a complicated issue.

But it doesn’t mean that the rest of us simply have to resort to partisan name-calling to justify the status quo.

The fact is there are as many meaningful reasons to leave the minimum wage alone as there are reasons to increase it. So we have provided a side-by-side analysis of the costs and benefits of a minimum wage increase and what it could mean for workers and the American economy, presenting both sides you can better understand the issue — and those who may disagree with you. (The full text of this graphic, including data citations, can be found here[3].)

MinimumWageFinal Minimum Wage War: Is a Pay Hike Good for the U.S.?[4]

Read More:

Back to Wages & Washington[9]

FOR THE MINIMUM WAGE

ON JOBS: The Center for Economic and Policy Research, among others, has researched localized minimum wage increases[10] in areas like San Francisco and Santa Fe and found no negative impact on total jobs.

ON POVERTY: The CBO[11] 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[12] 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[13] 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[14]. 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[15]. 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[11] 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[16] 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[17] 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[18], 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.[19] Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

Endnotes:
  1. Congressional Budget Office forecast: http://www.cbo.gov/publication/44995
  2. [Image]: http://investorplace.com/wages-and-washington/
  3. can be found here: http://investorplace.com/2014/03/minimum-wage-war/2/
  4. [Image]: http://investorplace.com/wp-content/uploads/2014/03/MinimumWageFinal.jpg
  5. Why Obamacare Is a Godsend to Older Workers: http://investorplace.com/2014/03/obamacare-godsend-older-workers/
  6. The Road to Retirement: 401ks, IRAs & More: http://investorplace.com/2014/03/retirement-401k-ira-immediate-annuity/
  7. Where’s Wall Street’s Cash Going? Not to You.: http://investorplace.com/2014/03/wall-street-cash-jobs/
  8. The Millennial Generation Will Be Just Fine: http://investorplace.com/2014/03/millennial-generation-y/
  9. Back to Wages & Washington: http://investorplace.com/wages-and-washington/
  10. researched localized minimum wage increases: http://mediamatters.org/research/2013/02/15/the-minimum-wage-myths-amp-facts/192692
  11. CBO: http://www.cbo.gov/publication/44995
  12. Data: http://backtofullemployment.org/2013/01/18/minimum-wage-hikes-do-not-cause-inflation/
  13. Worker productivity has soared: http://www.ibtimes.com/america-workers-are-more-productive-their-wages-are-flat-some-cases-lower-1393941
  14. improved efficiency and lower turnover: http://thinkprogress.org/economy/2013/02/14/1594181/no-firing-minimum-wage-raise/
  15. calculations: http://www.bls.gov/data/inflation_calculator.htm
  16. Earned Income Tax Credit: http://www.irs.gov/Individuals/EITC-Home-Page--It%E2%80%99s-easier-than-ever-to-find-out-if-you-qualify-for-EITC
  17. received some form of government aid: http://money.cnn.com/2012/12/18/news/economy/government-entitlement-aid/
  18. to Obamacare: http://www.usatoday.com/story/opinion/2013/12/14/susan-gabay-small-business-obamacare-costs/3998547/
  19. The Frugal Investor’s Guide to Finding Great Stocks.: http://www.amazon.com/Frugal-Investors-Guide-Finding-Stocks-ebook/dp/B007KB9CSI

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