On the Minimum Wage

The minimum wage features heavily in the news these days, thanks to its momentary inclusion in the coronavirus relief package and its subsequent removal due to the rules governing reconciliation. 

The proposed hike to $15 has both its proponents and its detractors, as well as those who are in favor of an increase but of a more incremental amount.

Below, we discuss the arguments for and against raising the minimum wage in an effort to better illuminate the issue.

What’s to Like

Currently standing at $7.25 per hour, the minimum wage has held steady since it was last raised in 2009. Over that same time period, the inflation rate in the United States was 24.57 percent, and the cost of living has increased by 20 percent, with the cost of housing and health care increasing even faster. And yet, our minimum wage has remained stagnant — impervious to the surrounding changes and the practical implications they carry.

Had it tracked the increases over the decades, the minimum wage would stand at $22 today. 

According to the Economic Policy Institute, after adjusting for cost of living, a full-time federal minimum wage worker today earns 18 percent less than his or her counterpart earned at the time of the last increase. In 2009, a full-time minimum wage worker would have earned $18,458 per year in today’s dollars; while today’s minimum wage worker earns just $15,080. 

Meanwhile, realized CEO compensation grew 105.1 percent from 2009 to 2019 and 940 percent since 1978. 

This disparity drives the economic inequality that our country faces today and leaves millions in poverty to flounder while their employers flourish. 

Yes, it has been argued that raising the minimum wage and, thus, the cost to employers will necessarily effect an increase in prices and accelerate the pace of automation. But automation is an inevitability, regardless. 

Look around you, and I would be willing to bet that you have seen a significant increase in the number of self-checkout lines at grocery stores and retailers or in tablets placed at the tables of bars and restaurants. I would also be willing to bet that you have seen the bulk of that change occur while the minimum wage remained steady. And that is because, even at a $7.25 hourly rate, human labor still often exceeds the cost of procuring automated technology.

As far as the potential for higher prices goes, I have been beating that drum as loudly as any free market enthusiast. But the thing about the free market is that free market economics naturally incentivize retailers to keep their prices low in an effort to compete for the consumer’s dollar. And the truth is, many of these companies have the scale and the revenue to absorb increases in worker pay; only, that cushion has long been directed toward those at the upper echelon of the pay scale, as opposed to those on the bottom rung of the ladder. 

But the capability is there.

And we know this because nationwide chains are already doing it. The minimum wage in New York City, for example, is already $15, and yet the chains there do not sell their products at exorbitantly higher prices than elsewhere. Sometimes the prices aren’t higher at all. A Chipotle burrito in New York City, for instance, starts at $7.75, while that same Chipotle burrito in Fort Lauderdale — where Chipotle’s minimum wage is a little more than $10 per hour — starts at … $7.75 too

Thus, it seems fair to conclude that these companies have the ability to shoulder increased labor costs without having to raise the cost of goods, as they are already doing so where required. 

What’s Not to Like

While the above argument works for highly profitable organizations, the same results may not hold true for small business. According to small business revenue statistics, 86.3 percent of small business owners make less than $100,000 in income per year, with an average of $71,813. 

So let’s say that you’re a pizza parlor owner making $60,000 per year. If your pizza parlor employs two full-time employees, and their wages rise from $7.25 to $15 per hour, that wage increase effectively wipes out more than half of your profits, meaning the business would likely fail, and three people would be out of a job. 

This is why, when polled, one-third of small businesses anticipate having to lay off workers if the minimum wage is increased to $15, and why the nonpartisan Congressional Budget Office forecast that, while a $15 minimum wage would lift 900,000 out of poverty, it would result in 1.4 million fewer jobs overall, with a one-third chance that the workforce could be reduced by as many as 2.7 million workers.

Practical Solutions

Given what we know about inflation and the cost of living, assistance for our nation’s lowest earners is inarguably overdue.

And while it is true that small businesses would be placed at a disadvantage relative to their larger counterparts, it is also true that the more employees a small business has, the greater the average revenue.

For example, while the average non-employer generates $46,978 in revenue per year, businesses with one to four employees average $387,000 in annual revenue; businesses with five to nine employees, $1,080,000; 10 to 19 employees, $2,164,000; 20 to 99, $7,124,000; and 100 to 499, $40,775,000 — a far cry from a pittance.

Still, these are gross revenues, not net, and depending upon profit margins, substantial increases in labor costs could prove fatal, nonetheless.

So what are other potential solutions?

One option proposed by Sens. Bernie Sanders and Ron Wyden would incentivize corporations to pay their employees a $15 minimum wage by imposing tax penalties on large corporations who don’t and giving income tax credits to small businesses who do.

Another option introduced by Sen. Josh Hawley would tie minimum wage to revenue, helping to ensure that we do not impose undue burdens on those who cannot afford to implement them.

Other options include offering universal basic income for low earners, increasing the Earned Income Tax Credit, or increasing the Child Tax Credit — all of which would place the burden on the federal government, not on individual employers.

And if we did raise the minimum wage substantially, we could always carve out exemptions in the law for businesses that fail to meet a certain profit margin, revenue, or income threshold.

Whatever the solution, we must act in earnest, as the number of workers living below the poverty line is untenable for a nation of our circumstance, and we have a moral imperative to ensure that those who put in honest work are not rewarded with squalor.

For further analysis on the pros and cons of implementing or raising a national minimum wage, check out the video below:

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