Minimum Wage: Is a Livable Wage a Right or a Privilege?

Co-authored by Christelle Gatoro

The Great Depression negatively impacted most Americans. The crash in our economic system left many destitute, out of work, penniless, and homeless. Lawmakers recognized policies and new legislation were necessary to pull the American worker out of poverty and give the economy a boost. During the 1930s, corporations notoriously exploited their employees. Americans were desperate for work, and corporations took advantage of their bargaining power and paid employees less than fair wages — lining their own pockets as a result. FDR strategically worked with Congress to pass the Fair Labor Standards Act in 1938 to protect laborers against greedy corporations. As part of the act, it established the first federal minimum wage for the United States.

The federal minimum wage received steady increases from 1938 to 2009, stalling at $7.25. Since then, it has been a fight between Republicans and Democrats if it should be raised — and if so, by how much? It is crucial to examine the economy’s landscape over the last 12 years, since the previous raise in the federal minimum wage, to understand the issue better.

Upon examining the data, policies, and economy, an increase in the federal minimum wage would be beneficial. The middle class is shrinking, and the divide between wealthy and impoverished families is growing. An increase in wages can provide more stability for middle and lower-class families and help shrink the divide. Additionally, evidence proves the productivity rates in our nation have skyrocketed while the minimum wage has lagged. Better aligning productivity rates to wages could help boost the economy and the workforce and lower the demand for the welfare system. Concerns over inflation, job loss, and impacts to small businesses hold merit but are not the only influence in the economy.

FINANCIAL STABILITY FOR AMERICAN HOUSEHOLDS

The federal minimum wage has remained the same since July 24, 2009. It has not been raised in over a decade, and millions of Americans are struggling to make ends meet. A little over eight million Americans are currently earning less than $10, and about 400,000 workers earn the minimum wage of 7.25. The harsh reality is that prices for goods and services are rising at an alarming rate. Still, more and more Americans are being plunged into poverty and can not afford to provide necessities for themselves and their families. According to the 2019 Census Data, approximately 34 million people in America are living in poverty. People of color and women make up many of those who bring home less than $20,800 annually. Earning $7.25 an hour is not a livable wage. For context, the average rent in the U.S. for a 2-bedroom apartment is $1,800 — a full-time minimum wage worker earns about $1,200 a month. Many American families struggle to keep a roof over their heads, provide proper nutrition to their children, and afford adequate healthcare.

Moreover, low-income individuals are most likely to experience food insecurities and face long-term health risks, which perpetuates poverty. James Baldwin profoundly explained that “anyone who has ever struggled with poverty knows how costly it is to be poor.” Although making more money will not fix all problems in America, it will benefit families who struggle to find adequate housing, affordable healthcare, transportation and decrease the existent racial wage gap in this country. A 2018 University of California study finds that since 1995, the minimum wage increase has reduced the “black-white wage gap by 12 percent overall and by 60 percent among workers with a high school degree or less”. With more people of color living below poverty levels than their white counterparts, expanding access to a livable wages would further reduce income inequality for communities of color

PRODUCTIVITY RATES

In 1968, the federal minimum wage was set at $1.60 an hour — or $12.09 per hour in 2021 dollars. The 1968 statistic is often used because it is historically the highest the minimum wage has been. It is also used because this wage matched the level of productivity in the workforce. If the minimum wage followed productivity rates, it would be around $22 an hour (see graph below). Productivity rates are “a measure of economic performance that indicates how efficiently inputs are converted into outputs.” It is calculated by the level of output divided by the hours worked. Productivity is a vital component to creating better policies for the protection of workers. The standard of living is dependent on the level of productivity. When these rates increase, but workers’ wages do not, the CEOs and other key members of corporations retain the profits from the productivity rather than passing them on, only furthering the wealth inequality gap. To better understand the pay disparity, CEO compensation has increased by 940% since 1978, while the minimum wage has only increased by 11.9%.

Some economists argue increasing the minimum wage will decrease the level of productivity rates and reduce the profitability of companies. It is possible productivity rates could initially decrease by about 3% with higher labor costs. It is essential to note productivity rates have increased approximately 13.2% since 2009 while the minimum wage has remained stagnant.

Evidence supports higher minimum wages recruit high-quality employees resulting in premium service and production. Many consumers are willing to pay higher costs if it guarantees a better service or product. Consumers absorb the extra labor costs instead of the company. Costco is an excellent example of passing labor costs to consumers. Sam’s Club and Costco have similar retail models, but Costco leads in sales annually despite a minimum wage difference of $7 — Sam’s Club wages start at $9, and Costco’s start at $16. The wholesale stores’ cost issimilar, but a membership to Costco is 33% more than a Sam’s Club membership. Many consumers prefer Costco over Sam’s Club for the quality of service, products, and selection.

If a minimum wage increase is mandated, it can be justified by productivity rates. There is some skepticism of corporations finding loopholes to advocate against an increase in wages. However, the stock values of publicly traded companies are dependent on the demand of its stocks and the potential future growth of the company. Corporate America will likely not be inclined to report fabricated numbers as it would hurt the value of their company.

When establishing the minimum wage, FDR stated, “It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By ‘business’ I mean the whole of commerce as well as the whole of industry; by workers, I mean all workers, the white-collar class as well as the men in overalls; and by living wages, I mean more than a bare subsistence level — I mean the wages of decent living.”

IMPACTS ON THE ECONOMY

There is no consensus among economists on whether raising the minimum wage to $15 per hour will benefit the American economy. Despite the federal minimum wage resting at $7.25 for over a decade, cities across the country have their minimum wage that exceeds the national level. Four cities in the state of California have established a minimum wage of above $15. In these cities, workers’ living standards have improved, and low-wage workers are more likely to spend. As a result, “more spending and economic stimulus occur when money is in the pockets of lower-income workers than when it is in the pockets of higher-income stockholders.”

There is great concern raising the minimum wage will decrease employment opportunities and increase consumer prices. Studies have shown an increase in wages does not reduce employment. And the rise in consumer prices is nominal: a $0.36 increase for every 10% increase in wages. Even with a slight rise in inflation, the overall economic spending power given to minimum wage employees is significant. One of the arguments with raising the minimum wage will benefit teenagers, part-time workers, and those who work to earn extra spending money. However, data reveals that the average age of the minimum wage employee is 35 years old, with women being the majority of low-wage earners. The average minimum wage age is crucial to consider because most middle-aged Americans have families and a desire to support themselves and provide a good quality of life for their families. If given more economical spending power, these individuals will be able to do more than survive. Thousands of low and middle-class families have incredible economic spending power than a handful of CEOs. If allowed a livable wage, it will stimulate the economy by putting more money in workers’ wallets.

WELFARE PROGRAMS

The federal minimum wage directly correlates to the number of individuals and families who rely on the government for financial assistance. A common argument against raising the minimum wage is that entry level workers, and especially teenagers, do not need or deserve a higher minimum wage. However, the average age of minimum age workers is 35 years old. Only 8% of minimum wage workers (of workers 16 years and older) are between the ages of 16 and 19, the same age most people get their first jobs. Studies have shown more than half the people on federal assistance earn below $10 an hour. If the bottom earners’ hourly wages increased even a dollar, government spending on assistance programs could decrease by $5.2 billion. It is not necessary for the bottom earners of our nation to struggle and rely on the government for assistance. It is possible to reduce the number of people on welfare and make them self-sufficient by raising the minimum wage to a standard that guarantees housing, food, and healthcare.

ECONOMIC UNCERTAINTIES

The Employment Policies Institute (EPI) released a survey that revealed 78% of labor economists (197 US economists) opposed raising the federal minimum wage to $15 an hour. Two-thirds believed that a more fair wage would be $10 an hour or less out of those surveyed. The debate amongst economists centers around employment, and they make the argument that if the minimum wage was raised to $15 per hour, they fear that workers will be laid off, prices will rise, or businesses will close. However, in most places in the United States, individuals who are earning the minimum wage can not afford necessities, including an affordable apartment. Furthermore, most lenders require that tenets make three times the rent monthly to be approved for rental. Now the government is called on to provide secure and affordable homes with federal rental housing programs. However, it puts the burden on taxpayers to fund affordable homes for low-income workers when the problem can be solved through a higher minimum wage. In the last decade we’ve experienced inflation and a rise in living costs, while the federal minimum wage has remained the same.

SOLUTION

Economists measure inflation by looking at products and services people purchase, such as food, housing, transportation, medical care, and recreation. The cost of living has risen, while the federal minimum wage has remained the same for over a decade. Some economists agree with the idea of incremental increases to the minimum wage rather than an abrupt change in salary with unintended negative consequences. To many Americans, the cost of living has become almost unbearable as they struggle to live from the low wages they are earning. 23 states and the District of Columbia have increased their minimum wages as of 2019. Currently, there are four cities in the US with a minimum wage of over $16 per hour, including Emeryville, CA, Seattle WA, and Mountain View, CA. Furthermore, states that have increased their minimum wage have taken slow measures to keep up with inflation rates.

On January 21, 2021, the Raise the Wage Act was introduced to Congress with the proposed planning of raising the minimum wage to $15 an hour by 2025. The increase will result in higher pay for households, and it is estimated that the number of people in poverty would be reduced by 0.9 million. Economists are not wrong when predicting that an instant increase from $7.25 to $15 per hour can hurt the economy. Although the gradual increase will give businesses time to adjust their employee’s salaries and obtain quality workers. There is still a lot of work to do to lift millions of Americans out of poverty, but it is possible and raising wages is a step in the right direction. Cities across the country that have taken significant steps to increase their minimum wages can influence other cities to follow suit.

CONCLUSION

Raising the minimum wage is a complex issue with a variety of perspectives, stakeholders, and potential outcomes. However, it is vitals for our economy and nation to remain afloat that we raise the minimum wage. The minimum wage was first introduced by FDR and paved way for the middle class. We have experienced a growing wealth inequality gap since the 80s and increasing wages can be part of the remedy. Raising the minimum wage will lift many out of poverty, decrease spending on welfare assistance, and increase the spending power of the lower class. There are economic costs to raising the minimum wage, but none that are impossible to navigate. If the minimum wage is incrementally increased, businesses and organizations will be able to adapt over time and make the necessary changes. We will experience an insignificant amount of inflation, but it pales in comparison to the stimulus the economy will receive from spending of the low-wage earners. Our economy will experience a boost and poverty levels will decrease.