Minimum Wage

I enjoyed dinner with friends the other night, Danielle and Amos.  The conversation led me to think about the minimum wage and why I have never been enthusiastic about those laws.

The current federal minimum wage is $7.50, although a lot of states have higher minimum wages, up to around $10.  The $7.50 wage is $15K per year if full time.  That’s not below the “poverty line” for an individual, but it is if you are supporting someone else as well, which many adults are.

Who works minimum wage jobs:

About 2% of the workforce is at the minimum wage level.  That’s much lower than it was decades ago.  But the inflation adjusted wages have also gone down over the years (hard to say exactly how much), so it’s not really a fair comparison.

Half of those near the minimum wage level (under $10) are under 24-years-old.  This group generally is not living in poverty or supporting anyone else.

Almost 2/3 of those earning near minimum wage are working part time.

About 30% of minimum wage earners are single parents (or at least primary income earners for more than one person in the household), according to this.

I didn’t get a number for those working near the minimum wage who are in families with two working parents.  I would like to know.  Certainly the more dire situation is one working parent with kids, and that must be a worrisome number.

A minimum wage law takes effect across the board, and it seems that will have a larger unintended effect then it will have an effect on families in poverty.  There are alternatives to helping families that struggle, without making a minimum wage law.

Free market:

A number of large and small companies have made news in recent years for raising starting wages.  Costco is an example.  These companies pay starting employees more than the minimum wage.  There are various reasons. Some say they want to be more selective about hiring employees, others say they want to save money on employee turnover.

A free market advocate does not necessarily want the bottom income earners to earn less wage.  They simply want the market or societal forces to be the driving force.  When companies raise wages above the minimum without a law forcing it, that’s fuel for the argument that the system will function well without the law.

What would happen if there wasn’t a minimum wage law?  I don’t suspect that many wages would go down, though some surely would.

Walmart:

There is an argument that Walmart (as an example) profits by paying employees low wages and letting government assistance make up the rest.  This would mean that the system incentivizes companies to take advantage, and even though the problem of helping those in need can be solved by other policies besides minimum wage laws, it might come from the wrong payers---the tax payers rather than the companies who are profiting.

Walmart did have particularly low wages.  On the other hand, they increased in the last year.  This year (2016) they will be up to $10 for starting wages.  So even Walmart wouldn’t be affected by an increase in the federal minimum wage.

In a market, the opportunity for a company to exploit employees with low wages occurs when supply exceeds demand for jobs.  In full employment, people can be selective about the job they take, which drives a company to pay on par with their profitability.  That still doesn’t make every job valuable, or wages high in every case, but at least it removes the possibility of a company taking advantage of the workforce.  Unfortunately, when jobs are not plentiful, the situation can change.

There is debate about how many jobs will be canceled with a mandated wage increase (to $10 nation wide).  One estimate was 500K, while at the same time pushing 800K people over the poverty line (in the right direction).

I disagree with Roosevelt’s statement when he started the minimum wage laws, that every job should provide a decent living.  Some jobs just aren’t careers.  It’s a good thing for people to have some fire under their seat, to move forward to something of more value to society.  On top of that, sometimes it would make sense to pay someone a low wage for certain jobs.  If a bookstore has hours where business is slow, it would make sense to pay someone $3/hour to sit and do schoolwork in between customers.  But that kind of hire is illegal.  Instead, businesses shut down during slow times.  One common complaint by low income earners is that they have to work odd hours, and part of the reason is because businesses can’t employ them at the slow times.  They may prefer to stay on in between at lower wage.  This also suggests that in fact these jobs are at risk if higher wages were mandated, since they are at the boundary of profitability.