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.