Last week during the annual State of the Union address, President Obama laid out his case for raising the national minimum wage. He said:
“…Today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, nineteen states have chosen to bump theirs even higher.
Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour. This single step would raise the incomes of millions of working families…”
Raising the minimum wage always sparks an intense debate. In the days since the State of the Union address I’ve seen numerous blog posts and articles on why raising the minimum wage is a bad idea. They all tend to use the same arguments against raising the minimum wage, so let’s look at the most common arguments against, and show why the federal minimum wage in the United States should be raised.
1. Raising minimum wage will make low-income workers more expensive, therefore causing them to lose jobs.
On the surface this sounds like solid logic. Companies will want to maintain profit margins and having to pay more for labor will cause them to slash the amount of employees they pay. However, we’ve seen dozens of minimum wage hikes and 19 states have minimum wages above and beyond the federal minimum. So where are all the job losses? They simply don’t exist.
This is not to say that no one loses their job, but as a whole, raising minimum wage has no discernible effect on employment rates. The University of Massachusetts-Amherst also conducted a 16 year study on the subject and also concluded that there are no employment effects of higher minimum wages. In fact, there are multiple studies that show raising the minimum wage increases employee morale, reduces job turnover and even increases productivity. So anyone that readily citing that mass job losses will occur from a minimum wage increase is speaking from a place of prejudice on the topic, not from the evidence.
2. The costs of a higher minimum wage will get passed on to consumers in the form of higher prices.
The “higher wages = higher inflation” argument is another popular one. Is it possible that companies that employ thousands of minimum wage workers, such as McDonald’s or Wal-Mart, will raise prices to offset increased labor costs? Yes, it’s possible. But this argument ignores that this is only one of the many ways that companies can deal with the increased cost.
Over the past 30 years executive pay has increased 127% faster than employee pay. The chart on the left shows that McDonald’s increased executive pay by 114% during the last recession. Did the price of my Big Mac rise due to those salary increases?
If they could increase executive pay at that rate during a recession surely they can afford to pay their minimum wage workers $1.75/hr more during a bull market. Maybe I’m a dreamer, but these employees could even get pay increases in lieu of increasing executive pay for a year or two!
Either way, inflation and the price of a Big Mac is influenced by so many economic factors that singling out one in particular as the cause is extremely short-sighted.
3. The increase doesn’t actually reach the people who need it.
This argument is the thought that an increase in minimum wage will only go to help high school kids who are flipping burgers on weekends for money to party with. Not to low-income workers actually supporting families. However a new study published by the Economic Policy Institute shows that:
– 84% of the total affected workers are over 20 years of age.
– More than half work full-time.
– Over 1/3 are married.
– More than 25% have children.
– The average worker affected brought home over 48% of their household’s earnings.
4. If raising it to $9/hr is so great, why not make minimum wage $90/hr!
I can neither confirm nor deny that I’ve seen something along these lines posted by multiple people as a Facebook status. You know the type, the ones whose political beliefs can all be summed up in those nice MS-Paint images that they love to spread around the internet.
This argument shows a complete lack of understanding of the topic in general. By increasing minimum wage to $9/hr (and historical increases) much less than 10% of the workforce is effected.
Raising the minimum wage to $90 (or whatever outrageous figure you prefer) would affect very close to 100% of the working population. I hope the difference is clear in terms of the economic effects that would occur.
5. We shouldn’t increase minimum wage, we should expand the EITC.
The EITC is the Earned Income Tax Credit, which is designed to help low-income families pay less to no income tax. The amount you can get from the EITC depends on your income, marriage status and the number of children you claim as dependents. Many of the same people now saying we should expand the EITC were the ones vilifying its recipients during the “47%” debate from the past election, but I digress.
The best solution would be to increase both the earned income tax credit and the federal minimum wage. With the EITC a person doesn’t reap the benefits until they go to file income taxes in the year after the income was earned. With a minimum wage increase, the benefit is received in real-time, with each paycheck.
Expansion of the EITC and an increase/inflation indexing of the minimum wage are two tools that compliment each other to help low-wage workers live better lives.
If minimum wage had simply increased along with the inflation rate it would be $10.56/hr today. The minimum that should be done is to index minimum wage to inflation so that those working on that wage don’t see what little buying power they have, decrease over time.
These debates always seem to bring up the same tired talking points, remember that there is no magic bullet to restore the middle class to its former glory. Raising the minimum wage, or expanding the earned income tax credit won’t fix all the problems politicians claim it will. But each should be part of the way that even the lowest income earners in our society can share in the broader prosperity of our country’s economic success.
Returning to President Obama’s speech, he said: …”a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.” And you know what? He’s right.
What do you think? Should the minimum wage be increased? Share your thoughts in the comment section below.