Minimum Wage Myths and Realities
January 19, 2019
Twenty-nine states and some cities have minimum hourly wage rates above the federal $7.25 minimum. Twenty states are raising their minimums again in 2019; some already are at the $15.00 widely-proclaimed living wage; other minimums are raised to $12.00 as part of annual step-ups to $15.00 by 2023.
Some minimum wage increase advocates say a person working full-time at the minimum wage should be able to support a family. At $15.00 an hour, a full-time worker would earn $31,200 a year. At $12.00, it would be $24,960.
According to the U.S. Department of Health and Human Services (www.healthcare.gov), the current “poverty line” for a family of three is $20,780; for a family of four, $25,100 and for five (mom, dad, three kids), $30,170.
Could a family of three to five people survive, let alone thrive, on $25,000 to $31,000 in New York, Chicago, Los Angeles or any other major metropolitan area?
However well-intentioned, the minimum wage increase is – and has been since it went up from 75 cents to a dollar in 1954 – a temporary bandaid. Necessary for folks at the bottom of the ladder, but still a short-lived benefit.
When the minimum wage increases, it has a ripple effect upwards, at least for the next four or five wage levels. Since labor cost is a component of a company’s, a college’s, a non-profit’s and a government’s total costs, prices, tuition and institutional and government revenues must rise to cover higher costs – or organizations must be willing to absorb reduced profits or even losses – or take other steps to compensate for higher labor costs.
As these steps are taken, up the line from the local shop to the giant corporation, there are two effects: prices rise and organizations, especially businesses, strive to increase productivity – achieve the same -- or higher -- output with fewer labor hours.
Rising prices is the definition of inflation, eroding the value of the higher minimum wage until, in three or so years, it’s time to raise the minimum again. That’s been going on since the federal minimum wage law went into effect in 1938 at 25 cents an hour, $10.00 a week. (As a point of reference, my grandfather was a trolley car driver in Brooklyn in the late 1800s-early 1900s for $7.00 a week. Thirty years later, $10.00 wasn’t much of an advance)
The other effect of rising labor costs is increased automation, driving up productivity but reducing work opportunities for the less-skilled people at the bottom of the ladder, those the minimum wage increase was intended to benefit.
Nothing I’ve said here is a novel insight; it’s been said over and over every time the topic of increasing the minimum wage comes up. The problem is the stance of the two sides: The proponents talk persuasively about the needs of people to earn a decent living; the opponents warn persuasively about the costs – high prices, fewer jobs for the un- and marginally-skilled worker.
Both are more-or-less right. Higher wages help poor people. Higher costs force prices up and/or efficiencies that reduce the need for labor. Since nothing is done to adjust cause and effect, the cycle starts up again.
If the cost of the basics of life – food, clothing, shelter and an internet connection – somehow stays flat or rises less than the minimum wage rises, it’s likely the increased wage would provide a greater benefit to more people and last longer. If more and more people emerge above the poverty line, however it’s defined, the benefit to the nation as a whole would be enormous.
Imagine what it would be like if the poorest people in the country had enough to eat, decent clothes, a non-leaky roof and an electronic link to the rest of the world (and of course, a good education) so they could climb from the bottom rungs up a few so the next cohort filling in below also could climb the ladder, following upward behind them -- paying higher taxes on increasing income, reducing the need for government aid and contributing to the nation's well-being.
How could that happen? It would take a collection of wiser heads than mine, especially heads attached to the movers and shakers of government, labor, social movements and business – the people with most skin in the game – to put aside their self-interests to work it out.
Could that, would that ever, happen? I hope so. It’s the only answer I can see.
- Tom Mac Dermott
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