It’s not hard to realize the current minimum wage of $7.25 is impossible to live off of, even if one is working two minimum wage jobs. So the question remains, how do we get people to earn livable wages? Is it the businesses and corporations to blame? Or is it the people? I’m sure you already have an answer in your head like I do, but I’d like to explain both approaches here first.
To begin, lets explore the start of the minimum wage. Unfortunately, it wasn’t implemented then for the same reason it is raised here in 2019. FDR implemented it in 1938 at 0.25 an hour, or $4 in today’s dollars. Your first thought may be that he did this in order to make sure people were gaining something from work towards the end of the Great Depression, however there’s evidence this isn’t the case. Since minimum wage creates unemployment, the minimum wage was implemented to give businesses a reason not to hire people who weren’t white. More on this in the following articles:
https://medium.com/the-enclave-of-others/the-racist-history-of-minimum-wage-5dd71ebf0770
https://www.forbes.com/sites/carriesheffield/2014/04/29/on-the-historically-racist-motivations-behind-minimum-wage/#7077856d11bb
Democrats, as I’m sure you are aware, want a $15 minimum wage increase, typically over a period of time. For instance, the governor of Illinois just a signed law to make the states minimum wage $15 by 2025 (https://www.chicagotribune.com/news/local/politics/ct-met-illinois-minimum-wage-pritzker-signs-bill-20190219-story.html). Republicans have been silent on the issue, and typically aren’t for over 100% increase bumps in the wage.
Many economists believe in a slight increase of minimum wage periodically in order to prevent high end income inequality, while on the other hand many economists think the best way to raise wages is to abolish the minimum wage.
For a basic understanding of wages and business, when there are forced increases in wages, unemployment occurs. The wage floor set by the government, when high enough, creates a shortage in jobs. That’s why these laws are set in to raise the wage periodically. Also, businesses are forced to raise prices in order to maintain their margins and not go out of business because of their workers. Increases in the minimum wage also causes businesses to slow their hiring process as it is now more expensive for them to hire more workers.
Now for an example, think about the cashiers at a McDonald’s. Most make $10 an hour. Now in order for a business to hire the cashiers, each cashier needs to make the business at least $10.01 an hour for the business not to lose money on the employee. If the employee does not make the business at least $10.01, they can’t hire them.
I understand that there are people who don’t give a company direct profits like janitors, but companies hire these people to help maintain their business and that is where their value comes from.
Back to the cashier example, if a company now has to pay the worker more than what they earn to the company, they either A) Hike their prices, or B) Fire their workers. Option B) can be seen in restaurants or gas stations where you order from a screen. Option A) is can be seen in places like New York City. NYC has a very complicated minimum wage, where a business needs to increase their minimum wage based on the size of their business. At a certain level of workers, they need to hike their wages. This is an incentive for businesses to not hire and spread more work to their already hired employees who may then feel they are underpaid for their work.
When businesses are forced to raise their wages, they increase their prices. This is why the minimum wage will never be enough to live off of and the cost of living will always be more than the minimum wage.
Many economists think that increasing the minimum wage periodically like this allows for greater amounts of inflation, which is a sign of a healthy economy. It also jogs the economy, as more money will be spent and GDP will increase year over year, and wages will climb.
The other group of economists who think it should be abolished believe that with no minimum wage (remember it causes unemployment) will allow for constant labor competition. Yes, no minimum wage. Most people when they see this think “that’s ridiculous, there would be slavery,” but let me explain.
The argument is that businesses don’t work without employees. They need employees to function and that is why they are willing to pay people for their skills. However, no rational person would work for $1 an hour, or $0 an hour. Businesses have to encourage their workers to work and perform well and do so by raising wages. These are called efficiency wages and it is statistically found that people who are paid more are more productive at work. Therefore, businesses who only offer their employees small wages will be forced to raise them in order to get people to work. Also, the businesses will be able to choose how to pay their workers and not have to fire people or raise prices in order to stay above water during forced raise increases.
So, those are the two radical arguments, however there is somewhat of an in between. Here in the United States there are currently more job openings than people, which means businesses will compete via increasing wages to gain employees. The same thing would occur with $0, so there is no reason to get rid of it as $7.25 really isn’t worth much anymore and there is already labor competition in the U.S. economy. Therefore, increasing the minimum wage by small increments does indeed seem the best option, but not by the federal government. Because of the reasons explained above, it is best done by the states.
This allows for people to learn the skills needed by businesses so they can climb the economic ladder, while also earning some wages. Again, it is impossible for the minimum wage to be livable off of as explained above.