March 8, 2014

61% Of Those Making Minimum Wage Are Millennials Living In Poverty: Here’s The One Thing That Would Get Them Out

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What is the issue?
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Obama via Blatant World

If you’re reading this Thought Catalog article you are likely between the ages of 16 and 34. This means you comprise 61% of the people making the minimum wage in the United States, that’s $7.25. That paycheck means, by definition, you are living in poverty.

Do I have your attention? I hope I do, let’s continue.

During the State of the Union in January, President Barrack Obama made raising the minimum wage to $9.00 an hour job number one for the United States Congress. He’s since amended that to $10.10. He also wants to raise the tipped minimum wage which is $2.13. So far, Congress has yet to call the President back on that offer. Instead, there’s been substantial pushback using a number of talking points the most resonating of which is that it will “cost Americans jobs.” Those in favor of raising the wage standard note that it will increase consumer buying power and help the economy and the President is traveling the country right now speaking with governors in an attempt to rally support for raising the minimum.

This is a complex issue but like most complex issues in politics it’s made more complex by people trying to confuse you and convince you. Stick with me a bit here, I know some people have strong feelings on this issue but, even if you think your mind’s made up, let’s go through the pros and cons and get some background on what it is we’re talking about. Below are some basic facts and observations then I’ll break down the politics of it a bit and discuss “the marketplace” and the minimum wage. Finally, I’ll tell you why I believe a hike in the minimum wage is ultimately a good idea. This can be dry stuff but I’ll try to liven it up for you and, at the least, you should come out the other end of this article with a better understanding of the issue.

The Basics:

  • Today, the federal minimum wage is $7.25 an hour.
  • The federal minimum wage is not that same as the minimum wage set by states. Each state sets its own minimum wage. Some are less than $7.25 and others are more.
  • Washington State has the highest minimum wage at $9.25 an hour. George and Wyoming are tied for last at $5.15 an hour. Tennessee, Alabama, Louisiana, South Carolina, and Mississippi have no minimum at all.
  • Today, there are 3.5 million workers earning the minimum wage, 2.8% of the workforce.
  • In 1968, the minimum wage was worth $10.47 in today’s dollars. That means minimum wage jobs today pay less than they did 36 years ago in terms of value. 1968 was also the peak in value for the minimum wage.
  • As of 2011, (nothing’s really changed) our minimum wage was substantially lower than in comparable countries.
Hourly_Minimum_Wages_in_Developed_Economies,_2011
via OECD
  • Minimum wage increases affect small businesses far more than medium and large businesses for the obvious reason that they have smaller profit margins (if any) and are far more subject to the whims of the marketplace. This is why you often see big business not caring as much about minimum wage standards issues.
  • Both camps, pro and con minimum wage, claim that raising it/getting rid of it would increase overall employment as well as increasing the tax base.
  • Poverty wages cost American taxpayers money in terms of benefits paid to the poor in the form of direct assistance and food stamps. Poverty wages combined with federal assistance in chronically poor areas may effectively discourage work. This is the despair factor (this is the other half of the Conservative ‘welfare queen’ idea).
  • Conservatives believe that the marketplace should set wages. They point to the fact that the prevailing wage in most states is higher than the federal minimum wage as evidence.
  • Liberals believe that the minimum wage sets a floor for wages that sets a standard for employers all over the country and contributes to making sure the working poor have a decent shot.
  • We are currently living in a time of low wages and extremely low effective corporate tax rates, at least for big corporations, it’s around 12.6%
  • Here’s who’s making the minimum wage (it’s mostly you millennials and some gen X-ers):

NewMinimumWageDistribution

The Arguments

This is where we really have to talk about politics and ideology. Keep in mind that it’s not my purpose to misrepresent anyone but I may speak broadly here a bit. It’s not out of disinterest. I just want to make the case without all the emotionality and histrionics.

Conservatives, generally considered pro-business both by themselves and everyone else, believe that raising the minimum wage decreases the supply of money available at a business for paying workers. Therefore, they believe that any forced increase (not demanded by the conditions of the marketplace) will necessarily mean that businesses will have to fire some people in order to pay the rest. They believe competition between businesses should drive wages.

Additionally, they argue that raising the minimum wage or, in some cases, having one at all, makes U.S. industry less competitive with foreign workers who are paid considerably less. Some go so far as to say that the minimum wage actually drives jobs overseas but that’s a pretty rare and extreme stance these days.

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That’s all the pie there is via

So, Conservatives generally look at the issue like it’s a pie and there’s only so much pie and if one person is going to get more pie then others will get less or possibly no pie. It’s a constrained way of looking at the issue because it doesn’t take two things into account.

  • Price increases
  • Increased consumption

Price Increases: Whenever, and I do mean whenever, taxes go up on corporations, those same corporations always increase the price of their products to compensate. That means that consumers ultimately pay for those tax increases. The same could be said for any increased cost. If a company has increased expenses it will always pass those expenses on to the consumer in the form of price increases if possible. This is almost always possible except in an economic recession or a depression.

Increased Consumption: People with more income are able to spend more money. The economy does best when lots of money is changing hands. A liquid economy signals stability, results in easier lending, and generally results in people starting businesses. If poor people had more income then they would spend that income which means that the very businesses that would have to pay higher wages would also be getting that money right back from the people they were paying them to. Poor people can’t save much generally. They spend because they have needs.

Liberals generally look at the minimum wage as a matter of social justice and protecting the poor from exploitation as well as reinforcing a floor for wages that keeps “the American Dream” generally within reach.  They often tout the above, price increases and increased consumption, as proof that an increased minimum wage would pay for itself.

Liberals also generally believe that workers should share in the profits of the businesses they work for so when a corporation is reaping record profits then they should pay their people more. Remember, at one time, (not really anymore) Democrats were the Party of Unions which is what produced most labor laws and standards in the US.

There Is Such A Thing As A Minimum Wage That’s Too High

But $10.10 is nowhere near that. It should be pointed out that in many places $10.10 is STILL a poverty wage so the President’s contention that “no one working 40 hours a week should have to live in poverty” is a little misleading. $10.10 isn’t going to end poverty as we know it but it will lift some of the working poor out of destitution which is largely the point. Additionally, in rural areas you can really stretch that money. In New York City, you’re going to be on food stamps.

But there is such a thing as a minimum wage that is too high. Small businesses can’t afford big jumps in the minimum wage, especially specialty stores that sell low volume amounts of medium ticket items. Additionally, if the economy dips then a company has less money to work with generally. They’ll likely have to fire someone. That’s why $10.10 seems like an easy sell for me. It could even be raised to $12 an hour likely without any ill effect. Certainly if Ireland can afford to do that then the great United States can. But some have suggested $20 an hour and that’s just begging for rampant price increases all over the country as businesses strive to preserve their profit margins.

The Main Thing Is Competition

Both the political Left and Right often talk about competition in business. But I’m not talking macro level competition as in global competition and productivity. There is no question that, globally, the US economy is the most competitive in the world even in recession. I’m talking about having several businesses of the same kind in the same geographic region that have to compete on price for workers.

The “prevailing wage” is always higher than the minimum wage meaning that if the minimum wage were to be increased to $10.10 then hourly competitive wages will rise above that. That’s just how competition works. If everyone is paying the same then it doesn’t matter who you work for and it becomes impossible to attract better skilled workers.

So, remember that $10.10 doesn’t mean $10.10 in practical terms. It probably means $11 or $12.

The Reasons To Raise The Minimum Wage

  • We can feel relatively safe that the US economy is resilient and robust enough to absorb an increase in the cost of labor on the lowest level. Minimum wage workers only comprise 2.8% of the workforce, that’s not a big chunk.
  • Any increase in labor prices at the low end can easily be offset by businesses in terms of raising prices slightly across a broad range of products. The increase would likely be unnoticeable however it would pay for itself and put more money in the pockets of low end workers, about 31 billion extra dollars a year. This would effect 16.5 million workers.
  • Increasing the minimum wage may not eradicate poverty but it does mitigate poverty, broadly, and absolutely increases the buying power of minimum wage workers. Just because it won’t save the world is no reason to do nothing.
  • It will move a LOT more money through the economy. Right now, consumer activity is still lukewarm but if you start moving cash around then you increase liquidity and stability. Businesses can plan better for the future. This will help, not hinder, businesses.
  • It will decrease the need for federal aid. This should be a big one for Conservatives. If low end workers, who receive a lot of federal monetary aid, are more independent then the federal government can save money on aid programs which results in “smaller government” according to the Conservative definition.

I’m a practical guy, very. If raising the minimum wage won’t hurt the economy but will help several million people to support themselves and their families better then there’s every reason to go ahead and do it. Again, countries with smaller economies than our own are able to pay higher wages than we are with no ill effect then the real world data says that we should do it and there’s no study in the world that can tell me otherwise. When at all available, I believe the data that my eyes can see in real time.

A final word on this. Wal-Mart has yet to come out in opposition to any minimum wage increase. The main business group that has opposed an increase in the minimum wage is the lobbying group the Chamber of Commerce who are primarily driven by ideology. They don’t actually run a business so they don’t have to make practical decisions. Additionally, think tanks don’t have to make practical decisions. They can say whatever they want, doctor whatever studies they want, lie all they want (left AND right). I think it’s most important to look at the world and ask the questions you can answer. Base your decisions on the answers to those questions and move forward. That’s probably good life advice too.

One last piece of evidence that raising the minimum wage isn’t a job killer, the state with the highest minimum wage in the country, Washington.

When Washington residents voted in 1998 to raise the state’s minimum wage and link it to the cost of living, opponents warned the measure would be a job-killer. The prediction hasn’t been borne out.

In the 15 years that followed, the state’s minimum wage climbed to $9.32 — the highest in the country. Meanwhile job growth continued at an average 0.8 percent annual pace, 0.3 percentage point above the national rate. Payrolls at Washington’s restaurants and bars, portrayed as particularly vulnerable to higher wage costs, expanded by 21 percent. Poverty has trailed the U.S. level for at least seven years.

Now that is evidence. Its’ time we believe what our eyes are telling us. TC mark

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