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From Making Low Wages Livable – A Symposium in The New York Times
Tens of millions of low-wage workers in the United States are trapped in lives of poverty. Many suggestions have been put forth to improve their difficult situation, ranging from new social welfare programs to enhanced adult education to greater unionization. But I think the easiest solution is also the simplest: just raise their wages.
The current federal minimum wage is $7.25 per hour and hiking it to $12 would solve many of our economic problems at a single stroke.
A $12 minimum wage is hardly extreme or ridiculous. At the 1968 height of our post-war economic prosperity, the American minimum wage was over $10.50 in current dollars, and setting the rate at $12 today would represent a real rise of merely 11 percent over a 45-year period, which seems reasonable since worker productivity has grown by over 115 percent during the same period. The minimum wage in France is almost $13 while Australian workers benefit from an hourly minimum wage of around $15, together with unemployment of just 5.7 percent.
Walmart is America’s largest private employer and 300,000 of its workers have average wages of just $8.75 per hour, forcing many of them to receive food stamps and other government welfare benefits to survive. But if a minimum wage hike boosted their pay to at least $12 per hour, Walmart could cover the costs by a one-time price rise of just 1.1 percent, and the average Walmart shopper would only pay an extra $12.50 per year. Meanwhile, a $12 minimum wage would increase the incomes of America’s lower-wage work force by a total of over $150 billion each year, shifting those huge sums from the pockets of the sort of people who don’t shop at Walmart to those who do. A minimum wage of $12 per hour would be very good for Walmart’s business.
And not just Walmart. America’s low-wage families tend to spend every dollar they earn, so a large minimum wage hike would constitute an enormous, permanent economic stimulus package, but one funded entirely by the private sector. Since wages would be rising nationwide, businesses could raise their prices to cover much or most of the added costs. Low-wage workers tend to be employed in the non-tradeable service sector, making their jobs relatively safe from foreign competition or automation. They’d keep their jobs, but their incomes would rise by 30 or 40 percent.
The impact on U.S. households would be enormous and bipartisan. Some 42 percent of American wage-workers would benefit from a $12 minimum wage and their average annual gain would be $5,000 per worker, $10,000 per couple, which is very serious money for a working-poor family. White Southerners are the base of today’s Republican Party, and 40 percent of them would gain, seeing their annual incomes rise by an average $4,500 per worker. If Rush Limbaugh — who earns over $70 million per year — denounced the proposal, they’d stop listening to him. Hispanics would gain the most, with 55 percent of their wage-workers getting a big raise and the benefits probably touching the vast majority of Latino families.
Ordinary taxpayers would be the other great beneficiaries, saving many tens of billions of dollars each year in payments for Food Stamps, the Earned Income Tax Credit, housing subsidies, and other social welfare programs. Businesses should pay their own employees rather than quietly shifting the burden to government programs and the American taxpayer. Conservatives and free-market supporters should endorse this simple idea.
The best way to help low-wage workers is to raise their wages.
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Scenario A
Poor black teenager, sick of being ‘trapped in poverty”, wants a job at McDonald’s. Let’s say minimum wage is $5. The owner isn’t too excited about having a teenage black kid with no skills (other than a willingness to work), but hires him anyway because he’s cheap. Kid has a job. The money he starts to make isn’t much, but anything helps. If he sticks with it, he’ll get some valuable work experience that may translate into useful skills that can get him a higher paying job in the future.
Scenario B
Minimum wage rises to $12. The same kid wants a job for the same reason. The same owner, though, decides not to hire the kid. Why? Because he can get more bang for his buck by hiring a white, recently laid-off , high school math teacher (skilled). Who knows what happens to the kid. He can sell drugs I suppose.
My point, is that people can ‘remain trapped in poverty’ BECAUSE of the increase in the minimum wage! I just don’t see it as being the panacea that you make it to be.
TJ
“The impact on U.S. households would be enormous and bipartisan.” “..businesses could raise their prices to cover much or most of the added costs”
Am I the only one that missed the contradiction here?
If the businesses where low wage workers shop raise prices to cover the added cost of an increase in minimum wage, do tell, what as the low wage worker gained?
Further, what does “bipartisan” have to do with?
Hmmm. I think you are toying with us. How was the magic $12 per hour decided upon? Why not $55/hr, or $160? Would not the benefits accrue much faster, and to a greater degree?
I note that unemployment in France is around 11%, unless one is under 25 then it is about 26%.
The plan, it is not working.
Any idea who shops at McD or Malwart? It is not Bill & Melinda, no it is the very same demographic that works there, and no, they are not forced to go on food stamps as a condition of employment.
Here is an idea – end the minimum wage. Let the market determine wages & benefits. End forced discrimination aka Affirmative Action, end EOC, end all government interference. Say, how is it that 1968 wages represent $10.50 in current pricing, isn’t that a recognition that it now takes $10.50/hr to buy what $2.00/hr bought in ’68? What happened – government again.
Hi Ron. I am a small businessman and a long-time libertarian. But I agree with your remedy. Even though I am not rich (or even close) I can afford to boost the wages that I pay to my employees. (Actually, I already pay some of my employees $12/hr).
Sadly, ‘trickle down’ economics is not working very well in the new global marketplace–at least not in the US. America’s ‘proletariat’ needs a bump in wages. Free Market forces in America will no longer lift people out of poverty. Globalism (and technology and robotics) is a big part of the problem.
I can’t believe that I’m saying this, but the minimum wage should be boosted, at least a bit. It will stimulate the US economy in a way the the bailout of Wall St. never did.
From an investor perspective, I support the idea of increasing minimum wage. QE from fed is to support the price through inflation, which can stimulate economy. However without elevation of minimum wage, you end up with increased gap between rich and poor. The risk of price collapse will never go away. Price collapse is the cause of economic disasters including housing market bust, toxic mortgage, sour bank loan, bad credit, ect. Bad credit can trigger train reactions leading to all kinds of “bubbles” bursting and economic downturns which we have seen many times before.
To prevent “bubbles” from bursting, you need to fill the bubble with elevation of minimum wage. Otherwise, QE only can create another bubble which is not sustainable.
QE + increasing minimum wage is the best way to prevent boom and bust cycle for the entire market. Bottom line I want sustainable “inflation” which prevent bank loan from going bad. If banks no longer have fear to lend, economy get true stimulation.
The reality is the word “minimum” wage is misleading. Truth is, to be honest with both the low wage seeker and the business that does the hiring, “minimum” “sends the message “you’re stuck”.. That’s it!
Change “Minimum” to “Starter Wage”, which sends the message there can be more, advancement and a better wage. Words do make a difference.
Most of the opinions expressed have to do with either really boost the “minimum” wage to $15.00-$25.00 per hour, or end all and let the market dictate wages. Extremes either way.
Let’s not forget that the highest % of unemployed are teenagers 16 to 19 years of age. As high as 70% for young black teens, with whites not far behind. They have too much time on their hands and along comes trouble and prision time. What’s that cost?
A “Youth Starter Wage” at $5.00 per hour with a maximum of 20 hours per week and must be attending high school. This avenue provides that “starter job”, structure, responsibility, spending money, savings, help at home, and other positive features. Many HS today offer their junior & seniors classes in how to get a job, dress, talk, and present themselves..
View a “Youth Wage” as an internship. Preparing for a better future, and not walking the streets looking for trouble, but learning to work with others and how to get ahead.
Lastly, it offers that business person, to do “a good community deed”. That they understand.
Everybody wins!
You can hear the screams of putting older folks out of a job…ok, I get that… how about helping and savng our youth from our dependency society. Just saying.
The sad truth (and unspoken) is that union wages are based on the federal minimum wage.
If an apprentice electrician is paid $15 /hr., he is trying to learn a trade that can greatly improve his lot in life. How is it fair if an unskilled starter position pays the same wage?
But how fair is it for that same apprentice to get $22.50 when he does not contribute any more to the job?
That is the reason the unions are behind the push, but every good and service cost will rise.
“300,000 Wallmart workers have average wages of just $8.75 per hour, forcing many of them to receive food stamps and other government welfare benefits to survive”
how many of the 300,000 actually are receiving welfare ? 15,000 ? 25,000 ?
it is much less than the 300,000 , many of those earning less than $9 per hour are new hires, part time workers many of whom are married to spouses earning more than $40,000 / year which precludes them from getting welfare benefits.
those Wallmart workers currently earning $12.00 will want a raise when they see the new part time workers earning the same wage as those who have worked at Wallmart for years in more demanding positions. So if the min wage is hiked to 12.00 many workers earning 12.00 will demand raises.