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Is Low Minimum Wage A Necessary Evil?

Posted by tbaker |
Fast Food Strikes

Demonstrators rally for better wages inside a McDonald’s restaurant in New York, as part of a national protest, Thursday, Dec. 5, 2013. Demonstrations planned in 100 cities are part of push by labor unions, worker advocacy groups and Democrats to raise the federal minimum wage of $7.25. (AP Photo/Richard Drew)

In 1938, President Franklin Roosevelt first introduced a federal minimum wage — 25 cents per hour. Today, the minimum wage is $7.25 an hour. According to the Bureau of Labor Statistics, 1.6 million of 313 million Americans earned exactly the minimum wage of $7.25 per hour in 2012.

During his State of the Union Address in February 2013, Barack Obama proposed that the federal minimum wage be raised to $9 an hour, a slightly less drastic increase than that put forth in the Harkin-Miller Fair Minimum Wage Act of 2013, which pushes for a federal minimum wage increase to $10.10 per hour by 2015.

Arguments abound for and against raising the minimum wage, with supporters of an increase touting a need to elevate members of the working class out of poverty, while opponents of an increase claiming that a federal minimum wage increase will do nothing to alleviate those struggling to make ends meet.

Raising the minimum wage

An increase in the minimum wage from $7.25 to $9 per hour would increase the salaries of some 15 million low-income workers, according to White House personnel.

Support for doing so is strong — in a recent poll conducted by The Washington Post and ABC News, more than half of the Republicans that responded agreed that the federal minimum wage should be raised.

Another poll, conducted by Huffington Post and YouGov, showed that 62% of respondents voted in favor of an increase in the minimum wage to at least $9 an hour. Sixty-three percent of the Hispanics that voted said raising the minimum wage would help workers.

Furthermore, a majority of those polled thought that the minimum wage should automatically be indexed to inflation each year in order to stay on par with the cost of living.

One of the most frequently cited arguments in favor of raising the minimum wage is the fact that, at $7.25 an hour, a full-time worker would earn $15,080 for the year, while the poverty threshold for a family with two children was set at $22,283 in 2012, according to the Center for Poverty Research.

To raise the current minimum wage of $7.25 to $9.88 an hour — the new minimum initially proposed by Iowa Senator Tom Harkin — would increase the annual salary of an employee from about $15,000 to over $20,000 per year, according to Harkin’s calculations. Furthermore, Harkin suggests that increasing the minimum wage would not only personally benefit workers, but would help to boost the economy by putting spending money in the hands of consumers.

But the Fair Minimum Wage Act’s suggestion of a raise to $10.10 has been gaining traction and garnering support.

“Sure, the small mom and pop stores will be significantly affected by such a drastic increase in the minimum wage,” admits Mary Newell, Vice President of Wynn-Newell Audiovisual (WNAV) in Bloomington, Minn. “But I am in favor of a $10.10 minimum wage because, keeping in mind the price of inflation, that is the minimum hourly wage that can support someone in today’s economy.”

Opposition

The principal means by which individuals increase job security is through continuing education, and the accumulation of experience and skills applicable to the desired job market, according to David Neumark, Professor of Economics at the University of California – Irvine. Neumark suggests that an increase in the minimum wage may prevent individuals from obtaining adequate education because, if paid higher wages for entry levels positions, students may be less motivated to continue on with school and more motivated to drop out and find work.

In a study published in 2001 by Thomas MaCurdy and Frank McIntyre of Stanford University, the authors concluded that the federal minimum wage is ineffective as a policy against poverty, and, therefore, such an increase would not be useful.

In their study, MaCurdy and McIntyre suggest that those who earn low wages are not necessarily those who live in poverty. So increasing the minimum wage would not actually do much to alleviate the poor from poverty, according to the study.

Another factor is that an increase in minimum wage could cause many employers to cut labor costs.

“The majority of my receptionists are high school girls that are paid minimum wage,” says Carlyle Kramer, owner of a Fantastic Sam’s Hair Salon in Minnesota. “I’m not against a reasonable increase in the minimum wage, but the 40% increase is just too much and I would have to cut back the hours that my receptionists work.”

An argument put forth by Evan Soltas of Bloomberg News suggests that supporters of a minimum wage hike as a means to reduce poverty ignore a more important federal policy for the poor: the Earned Income Tax Credit (EITC), a refundable tax credit for moderate income working individuals and couples that is calculated based on income and number of children. Soltas argues that the federal government should focus on expanding this program rather than increasing the minimum wage.

Arkansas and the minimum wage

Currently, the minimum wage in Arkansas is $6.25 an hour, lower than the federal minimum.

A poll conducted by the American Federation of State, County and Municipal Employees showed that 73% of the respondents in Arkansas want at least a slight increase in the minimum wage, while 54% want the minimum wage to be increased to $8.50 an hour.

Despite demonstrated support for a minimum wage increase in Arkansas, The House Committee on Public Health, Welfare and Labour rejected HB 1402 earlier this year, which was created by Representative Butch Wilkins to increase the state minimum wage two dollars, from $6.25 to $8.25 an hour. The bill would have taken effect in October of 2013.

Arguments against a minimum wage increase in the state are complex and varied.

“The minimum wage has a smaller effect in Northwest Arkansas because the unemployment rate is usually much lower than the national average and often current wages are a bit higher than the minimum wage,” Rolf Wilkin, owner of Eureka Pizza, said in an email correspondence. “I am concerned that raising the rate nationally affects poorer regions like Eastern and Southern Arkansas — in those regions people with low job skills are often priced out of the job market because the minimum wage is higher than an employer is able or willing to pay.”

But Wilkin admits that it can be difficult to thrive on the current state minimum wage.

“I know that it is tough to make it on a lower wage job,” Wilkin sympathized in an email correspondence. “I have had customers tell me that our $3.99 Monday Pizza special is the only restaurant meal that they can afford.”

 

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