Raising the Minimum Wage
For many people, this is one of THE most frustrating political conflicts, not because emotions run high the way they do concerning gay marriage or abortion, but because looking at individual business models that exist in real life is largely absent from the equation. Instead, the dialogue is dominated by talk of greed, fairness, and studies about what increases in the minimum wage have done in the past.
Every person advocating for a policy such as this should look at it from the perspective of an individual business owner and how it would affect him or her and their employees.
Although his platform only mentions raising it from $7.25, he has been specific in mentioning a nationwide $15 living wage. The argument is that no one should have to live in poverty and if these workers all made $15, everyone else would benefit as they spend the extra money — in other words, “trickle-up economics.”
Every person advocating for a policy such as this should look at it from the perspective of an individual business owner.Craig Berlin, IVN Independent Author
What is more popular is the idea of states, or especially local communities setting a minimum wage based on the cost of living in their area. A federal minimum wage mandates the same number for employers in areas where costs of living and operation are drastically different.
There are a number of issues to address here. First, minimum wage earners are a tiny fraction of the workforce and their numbers are declining.
As CNN reported in 2013: “Just under 60% of all U.S. workers are paid hourly, according to the U.S. Bureau of Labor Statistics. An estimated 4.7% of those hourly workers make minimum wage or less, down from 5.2%, a year earlier. That share is the lowest since 2008.”
In addition, about half of those work in the leisure and hospitality industry, mostly in restaurants and food service where they earn tips and commissions. Finally, and importantly, most are young, single, and lack a high school diploma. It should go without saying that education and the motivation to succeed will do more to ensure people aren’t living in poverty than raising the minimum wage.
Second, while Bernie says that no one should live in poverty, the Department of Health and Human Services currently rates the federal poverty level for individuals at $11,770, excluding non-cash benefits such as food stamps and housing subsidies. A full-time minimum wage earner should gross $15,080 and net about $13,210 after Social Security and Medicare taxes.
Not to imply that’s plenty, but the farther you get from the current minimum wage, the more current earners of $7.25 to $14.99/hour are above the poverty line already.
Third, there is a great deal of misleading information. The most notable one is regarding McDonald’s in Australia, where memes claim workers earn $16/hour, yet a Big Mac is cheaper. As with many memes, they leave out “the rest of the story.”
The current minimum wage down under is actually $17.29 (only $12.28 in U.S. dollars) and fast food workers have a national “award” somewhat comparable to a union contract which guarantees Level 1 workers about $19/hour ($13.50 U.S.). However, “junior workers” can be paid as little as 40% of the guaranteed wage starting at age 16, increasing by 10% until age 21 — so employees age 16 only earn about $5.40/hour U.S.
The result of all this is that McDonald’s in Australia rely on younger workers in non-management positions and in addition, most of their cashier positions have been converted to kiosks.
Finally, there is a wide variety of opinion what effect such a hike would have based on what has happened in the past with any increase. Some fiscal conservatives tend to predict doom and gloom while progressives anticipate a windfall for the working class. The reality needs to be addressed in the specifics, because each business has its own circumstances and broad generalizations aren’t helpful.
Increases in the minimum wage have not had widespread dire effects but never has anyone suggested something so dramatic. The Department of Labor has a full page devoted to myth busting critiques of raising the minimum wage, but they are only talking about $10.10 to $12. Many of the endorsements are based on surveys, which doesn’t mean they are completely invalid but again, they don’t deal with specific business models.
Further, the Congressional Budget Office did studies on even smaller increases to $9.00 and $10.10 and acknowledged, “some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly,” all due to a much smaller increase.
Foregoing inexact comparisons to look at real business models, we can focus on small businesses, which makes up 99.7 percent of U.S. employers.
As an example, take an actual retail franchise with over 150 stores that aims for owner profit to be 20%, from which the owner must compensate himself and pay off any loans. Cost of labor is also around 20% and many part-timers in high school or college may start in the $8-9 range.
In the long run, it seems increases are reasonable but $15 is likely to have adverse effects.Craig Berline, IVN Independent Author
He has fixed costs such as rent. If he is forced to nearly double his labor costs, where does the money come from? The pie is not any bigger; the slices have simply been cut into different sizes. If he raises prices to attempt to increase income, can he remain competitive? Does he reduce advertising, which might hurts sales? Does he take it out of his own pay?
Ultimately, most owners acknowledge that they will have to reduce hours and hurt the very people this was designed to help. Further, if other businesses have to raise prices as well, it reduces the effects of the wage increase and hurts people on fixed income.
There are many variables to consider, but one thing to avoid is making assumptions about who will be hurt and who won’t. While it’s not uncommon to hear people say that any business that can’t pay workers a living wage shouldn’t be in business at all, few who make such claims are in the position of having to make such a choice.
In the long run, it seems increases are reasonable, but $15 is likely to have adverse effects, particularly on young people. And of course, it’s curious that Senator Sanders only pays his interns $12.
Pay Equity for Women Workers
In 2014, Congress rejected the Paycheck Fairness Act, an attempt to address alleged discrimination and some felt the GOP’s “no” vote indicated they oppose equal pay. Republicans argued existing laws offer sufficient protections and the proposed legislation would not solve discrimination; rather, it would be a gift to trial lawyers while adding unnecessary burdens to business while hurting those it was designed to help.
There is no one credible who doesn’t believe women should receive equal pay for equal work. The argument has always been about the accuracy of the statistics and whether additional laws will help.
The argument has always been about the accuracy of the statistics and whether additional laws will help.
When President Obama said women earn only 77% for doing the same work as men, his claim was rated “mostly false” because it didn’t “factor in occupations held, hours worked or length of tenure.” In fact, when the Bureau of Labor Statistics measured hourly wages, women earned 87% and it varied widely by occupation.
However, when he revised his claim to say that women earn .77 to each dollar a man earns, that was rated “mostly true.” Why? Because “it refers to the average disparity between what men and women earn, period.” In other words, women only earn 77% for any number of reasons including working less.
In fact, in 2009 a Department of Labor study acknowledged the raw wage gap continues to be used in misleading ways to advance public policy agendas without fully explaining the reasons behind it. Politifact noted: “When you consider women being more likely to work part-time for lower pay, leave the labor force for children or elder care, and choose work that is ‘family friendly’ with fuller benefit packages over higher pay . . . factoring in those variables, the gap narrows to between 93 cents and 95 cents on the dollar.”
“The raw wage gap should not be used as the basis to justify corrective action,” said Charles James, the deputy assistant secretary. “Indeed, there may be nothing to correct.”
California may also be an opportunity to evaluate legislation. As Sarah Ketterer reports in the Wall Street Journal, Governor Jerry Brown is about to sign the California Fair Pay Act, a state law similar to the one Congress rejected.
“Companies must now ensure that every penny of wage differential between the men and women they employ is attributable to bona-fide differences in education, training, experience, quantity or quality of work, and so on. Referring to the countless factors at play, Harvard economist Claudia Goldin has said ‘it’s not checkable.’ Yet even attempting to do so will only add to companies’ already substantial regulatory-compliance budgets. Some of these factors—quality of work, for instance—are inevitably subjective, yet trial lawyers will swoop in to turn every conceivable pay difference into a lawsuit.”
In sum, in looking at anything that appears to be a way of ensuring economic justice, we should be mindful of making an accurate evaluation of the problem and unintended consequences of proposed legislative attempts to rectify.