Democrats have greatly misunderstood the politics of the minimum wage in
a way that hurt them in the 2014 elections.
They’re right about one big thing: Minimum wage increases are
popular, at least to modest levels under $10, even in red states where
Republican lawmakers have blocked them. Voters in four red states voted on
minimum wage increases Tuesday and they all passed, three of them by
wide margins. If what Democrats want is a higher minimum wage, they can
keep putting the issue on ballots and most likely keep getting their wish.
What fights over the minimum wage did not do is deliver any advantage
to Democratic candidates for office. Perhaps the best example of this comes
from Illinois. The state has a Democratic governor and a Democratic-held
legislature. If Democrats wanted to raise the minimum wage to $10 an hour
from its current $8.25, they could have.
Instead, they put an advisory question on the ballot, asking voters for
nonbinding guidance about whether the minimum wage should be $10. The
idea was to fire up liberal voters by asking about popular Democratic
positions; the ballot also included nonbinding questions about taxing
millionaires to pay for education and requiring health plans to cover
contraception.
All the nonbinding questions passed by wide margins. And the
electorate that voted with liberals on the issue questions simultaneously
rejected Gov. Pat Quinn, a Democrat, in favor of his Republican challenger,
Bruce Rauner, who has mused about cutting the state’s minimum wage. (Mr.
Rauner also opposes a millionaire’s tax.)
Here’s the thing about the minimum wage: Most voters don’t live in
households where anyone earns it, or are even close enough to it to get a
raise when it goes up. If you ask people whether they favor a higher
minimum wage, most will say yes, and even vote that way on a binding
referendum. But if a politician opposes raising it, middle-class voters won’t
necessarily get angry, and their votes may not be moved.
The lesson of Tuesday’s minimum wage votes is that Democrats can do
more on the minimum wage, not that they can help themselves politically by
talking about it more. Just because a proposal is popular does not mean it
can be a keystone in your economic agenda. As Kevin Drum of Mother Jones
has noted, Democrats have an economic agenda that is heavily attuned to
the poor; it’s much less clear what they would do for the middle class.
Many policies that help the poor are favored by the middle class. But if
politicians want to win the votes of the middle class, they have to campaign
on issues that affect them directly. Minimum wage increases do not serve
that political end. (The Upshot NYT)
Please note that if Wal Mart is to adopt the new proposed minimum wage then it is estimated to cost about $200 million a year which can be passed along to the consumers by raising every $16 purchase by 1 penny !!!! **********************************************************************
In 1914, Henry Ford announced he was more than doubling the average wage of Ford Motor Co.
factory workers to $5 a day, in part so they could afford a Model T.
His act took the world by surprise, spurred auto sales and helped create
an American middle class.
One hundred years later, U.S. companies including Gap Inc. and Wal-Mart Stores Inc. are caught up in the debate over raising pay -- this time an increase in the federal minimum wage. President Barack Obama
and Senate Democrats want to raise it to $10.10 an hour from $7.25,
saying doing so will bolster the economy and reduce income inequality.
House Republicans and industry groups oppose the plan, deeming it a job
killer.
“When Henry Ford announced the 5-dollar-day, the
response was that it would diminish the auto industry and bankrupt his
company,” Harley Shaiken,
a labor economist at the University of California, Berkeley, said in an
interview. “Instead it jump-started purchasing power, reduced turnover
and increased the profitability of Ford Motor Co. There’s a lesson we
can still learn from that.”
A boost in the minimum wage to
$10.10 would add $200 million -- or less than 1 percent -- to Wal-Mart’s
annual labor bill, the University of California Berkeley Center for
Labor Research and Education estimates. If Wal-Mart passed along the estimated $200 million in
extra labor cost to consumers, it would equal about a penny per $16
item, said Ken Jacobs,
the Labor Center’s chairman. Meanwhile, the rise may boost purchases
among the chain’s core shoppers, many of whom could see their earnings
climb, he said.
Income Equality
The corrosive effects of income inequality on companies came into renewed focus yesterday when Wal-Mart
said profit this year will trail analysts’ estimates as its low-income
U.S. customers continue to struggle. The Bentonville, Arkansas-based
retailer, which previously backed a higher minimum wage, is trying to
assess whether raising it again would help or hurt. Gap Inc.
didn’t wait for Congress to act and announced raises for store workers
starting next year. Obama hailed the San Franciso-based chain’s action
and urged others to follow.
The 1914 pay increase was a more
dramatic change than the current proposed increase. Raising wages to $5
gave workers an extra $62.22 daily in purchasing power in 2014 dollars,
based on a Bureau of Labor Statistics inflation calculator, assuming
they were earning the $2.34 industry average. Today, workers will gain
$22.80 per 8-hour day with a $7.25 to $10.10 raise.
Boosting Incomes
Still, economists say raising
the wage will help low-income workers. In a report this month, the
non-partisan Congressional Budget Office said that while raising the
federal minimum wage to $10.10 an hour could wipe out as many as 500,000
jobs, it could also boost the incomes of 16.5 million low-wage workers
by $31 billion in 2016.
“High wages make your employees better
customers,” Wallace Hopp, associate dean of faculty and research at the
University of Michigan’s Stephen M. Ross School of Business, said in an
interview. “You’re putting this money in the hands of people who are
most definitely going to spend it. They’re not socking it away in mutual
funds. The money goes back into the economy pretty quickly.”
While
the U.S. economic recovery is in its fifth year, disposable incomes
only inched up in 2013, for the fourth year in a row. Low-income
shoppers have been buying mostly necessities even as more well-heeled
consumers shell out for bigger-ticket items such as appliances and cars.
As a result, Ford and General Motors Co. last year posted the strongest auto sales in the U.S. since 2007. By contrast, retailers from Wal-Mart to Lululemon Athletica Inc. have cut their forecasts.
Wal-Mart Question
For
Wal-Mart, the question is whether a higher minimum wage that puts more
money in shoppers’ wallets would boost sales enough to offset higher
labor costs. Figuring that out isn’t easy because it’s hard to predict
consumer behavior, David Tovar, a company spokesman, said in an interview.
Would
increased consumer spending “offset and maybe even exceed whatever
impact you pay out to associates?” he said. “It’s really hard to model
behavior based on these kinds of changes.”
Wal-Mart won’t reveal
the potential added costs or potential impact. The calculations for the
Berkeley study are based on Wal-Mart’s wage distribution data, which
the company published as part of a lawsuit more than a decade ago,
Jacobs said. That data is indexed to Wal-Mart’s
average full-time wage, which the company updates each year, and his
estimates of its state and federal minimum wage workforce are very close
to the retailer’s, he said.
Small Number
“It’s a
rough estimate, but however you change the parameters, at $10.10 you are
not going to come up with a big number vis-à-vis their overall cost
structure of business,” Jacobs said.
Other large discount
retailers and dollar stores may similarly see higher sales, which may
help them to cushion the additional labor costs. Such an outcome
reinforces the view of minimum wage supporters that a hike bodes well
for consumer spending, 70 percent of the economy.
Much of the
extra cash that workers would get is likely to go to basic goods, such
as clothing and food, resulting in a “very modest” impact, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.
Labor-intensive businesses like restaurants could find the wage hikes more difficult to absorb than large retailers.
Even so, the debate about raising the minimum wage goes beyond the immediate lift it would provide to purchases, according to Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.
Living Wage
“There
is plenty of merit in the economic argument, but that’s hardly the
entire argument,” Shapiro said. People “are stuck in a cycle of crappy
jobs” and “we need to ask ourselves, why do we have this situation? In
general, paying people wages that they can live on is something every
industrialized society should be able to do.”
Nine years ago,
Wal-Mart was making purchasing-power arguments similar to the ones being
made by Obama and Democrats today. In 2005, H. Lee Scott,
then Wal-Mart’s chief executive officer, urged Congress to raise the
minimum wage, saying the company’s customers “are struggling to get by.”
“The U.S. minimum wage of $5.15 an hour has not been raised in
nearly a decade and we believe it is out of date with the times,” Scott
said in a speech to company executives. “Our customers simply don’t have
the money to buy basic necessities between pay checks.”
Support
from Wal-Mart helped Democrats push through the last increase in the
wage floor after the party won control of both chambers of Congress in
the 2006 midterm elections. Just three Senate Republicans opposed the
2007 rise, which also drew the backing of more than a third of House
Republicans.
This time Wal-Mart has staked out a neutral position. The political optics have changed too. Senate Majority Leader Harry Reid,
a Nevada Democrat, plans to bring the latest minimum-wage proposal to
the Senate floor next month. The legislation faces long odds on Capitol
Hill. Democrats, who control 55 seats in the 100-member Senate chamber,
may struggle to garner 60 votes to advance the bill.
(From Bloomber)
A minimum wage is a prescribed wage level that must be met or
exceeded by employers in all employment contracts, as set forth in the
Fair Labor Standards Act. The minimum wage is revised from time to time
to adjust for inflating prices. Microeconomics is the study of financial
issues from the perspective of individual economic units, such as a
single household, small business or individual. The minimum wage has a
number of positive and negative effects on businesses, families and
individual workers, from a microeconomics perspective.
Effects on Business
Businesses that rely to a large extent on unskilled labor
generally experience dramatic increases in wage expenses as a result of a
minimum wage, since a minimum wage virtually eliminates companies'
ability to negotiate wages for their lowest-level employees. According
to the U.S. Department of Labor, the minimum wage increased about twenty
four percent between 2007 and 2009, going from $5.85 to $7.25 per hour.
Businesses that employ unskilled labor see their profit margins
diminish and their expenses increase, presenting a challenge to their
economic growth and introducing a new variable to economic
decision-making.
Local Employment
Many companies see the minimum wage as a large expense for an
unskilled worker, which can cause them to impose stricter decision
criteria for hiring or cut back on hiring altogether. Minimum wage jobs
are often suited for young people entering the workforce for the first
time, but, according to the Employment Policy Institute, every 10
percent increase in the minimum wage causes a five to nine percent
decrease in youth employment. This can cause a situation where
individuals with little experience who might happily accept a lower wage
find themselves unable to find a job. If this trend continues in
specific regions, local unemployment could rise, possibly raising
homelessness and crime rates as well.
Effects on Individuals
Employees experience direct benefits from a minimum wage, but
there are a number of drawbacks to consider as well. The obvious benefit
to unskilled workers is the guaranteed boost in discretionary income
provided by a guaranteed wage. Highly skilled and experienced workers
experience a boost in income as well, since a raise in the lowest wage
pushes all other wages upward as well. It can be argued that the minimum
wage has never been high enough to fully support a family. According to
the U.S. Census, only around seventeen percent of minimum wage earners
are supporting families on their own. The effects of business's
reactions to the minimum wage can be detrimental to employees in the
long run as well. Companies may turn to automation or outsourcing to
control the increase in wage expenses. This could reduce the number of
jobs available in the marketplace for unskilled workers, again resulting
in higher unemployment. Younger employees can benefit greatly from the
minimum wage. Employees entering the workforce for the first time, with
no experience, can count on the minimum wage to provide them the income
they need to handle their first expenses. This, in turn, allows
heads-of-household more discretionary income to spend on family needs.
I don’t believe that’s because economists care less about the plight of
the poor — many economists are perfectly nice people who care deeply
about poverty and income inequality.
Rather, economic analysis raises questions about whether a higher
minimum wage will achieve better outcomes for the economy and reduce
poverty.
First, what’s the argument for having a minimum wage at all? Many of my
students assume that government protection is the only thing ensuring
decent wages for most American workers. But basic economics shows that
competition between employers for workers can be very effective at
preventing businesses from misbehaving. If every other store in town is
paying workers $9 an hour, one offering $8 will find it hard to hire
anyone — perhaps not when unemployment is high, but certainly in normal
times. Robust competition is a powerful force helping to ensure that
workers are paid what they contribute to their employers’ bottom lines.
One argument for a minimum wage is that there sometimes isn’t enough
competition among employers. In our nation’s history, there have been
company towns where one employer truly dominated the local economy. As a
result, that employer could affect the going wage for the entire area.
In such a situation, a minimum wage can not only make workers better off
but can also lead to more efficient levels of production and
employment.
But I suspect that few people, including economists, find this argument
compelling today. Company towns are largely a thing of the past in this
country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition
for workers in most places. And many employers paying the minimum wage
are small businesses that clearly face strong competition for workers.
Instead, most arguments for instituting or raising a minimum wage are
based on fairness and redistribution. Even if workers are getting a
competitive wage, many of us are deeply disturbed that some hard-working
families still have very little. Though a desire to help the poor is
largely a moral issue, economics can help us think about how successful a
higher minimum wage would be at reducing poverty.
An important issue is who benefits. When the minimum wage rises, is
income redistributed primarily to poor families, or do many families
higher up the income ladder benefit as well?
It is true, as conservative commentators often point out, that some minimum-wage workers are middle-class teenagers or secondary earners in fairly well-off households. But the available data suggest
that roughly half the workers likely to be affected by the $9-an-hour
level proposed by the president are in families earning less than
$40,000 a year. So while raising the minimum wage from the current $7.25
an hour may not be particularly well targeted as an anti-poverty
proposal, it’s not badly targeted, either.
A related issue is whether some low-income workers will lose their jobs
when businesses have to pay a higher minimum wage. There’s been a
tremendous amount of research on this topic, and the bulk of the
empirical analysis finds that the overall adverse employment effects are small.
Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover,
which raises productivity and labor demand. But it’s possible that
productivity also rises because the higher minimum attracts more
efficient workers to the labor pool. If these new workers are typically
more affluent — perhaps middle-income spouses or retirees — and end up
taking some jobs held by poorer workers, a higher minimum could harm the
truly disadvantaged.
Another reason that employment may not fall is that businesses pass
along some of the cost of a higher minimum wage to consumers through higher prices.
Often, the customers paying those prices — including some of the diners
at McDonald’s and the shoppers at Walmart — have very low family
incomes. Thus this price effect may harm the very people whom a minimum
wage is supposed to help.
It’s precisely because the redistributive effects of a minimum wage are
complicated that most economists prefer other ways to help low-income
families. For example, the current tax system already subsidizes work by
the poor via an earned-income tax credit. A low-income family with
earned income gets a payment from the government that supplements its
wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous.
By raising the reward for working, this tax credit also tends to
increase the supply of labor. And that puts downward pressure on wages.
As a result, some of the benefits go to businesses,
as would be the case with any wage subsidy. Though this mutes some of
the direct redistributive value of the program — particularly if there’s
no constraining minimum wage — it also tends to increase employment.
And a job may ultimately be the most valuable thing for a family
struggling to escape poverty.
What about the macroeconomic argument that is sometimes made for raising
the minimum wage? Poorer people typically spend a larger fraction of
their income than more affluent people. So if an increase in the minimum
wage successfully redistributed some income to the poor, it could
increase overall consumer spending — which could stimulate employment
and output growth.
All of this is true, but the effects would probably be small. The
president’s proposal would raise annual income by $3,500 for a full-time
minimum-wage worker. A recent analysis
found that 13 million workers earn less than $9 an hour. If they were
all working full time at the current minimum — and a majority are not —
the income increase from the higher minimum wage would be only about $50
billion. Even assuming that all of that higher income was redistributed
from the wealthiest families, the difference in spending behavior
between low-income and high-income consumers is likely to translate
into only about an additional $10 billion to $20 billion in consumer
purchases. That’s not much in a $15 trillion economy.
SO where does all of this leave us? The economics of the minimum wage
are complicated, and it’s far from obvious what an increase would
accomplish. If a higher minimum wage were the only anti-poverty
initiative available, I would support it. It helps some low-income
workers, and the costs in terms of employment and inefficiency are
likely small.
But we could do so much better if we were willing to spend some money. A
more generous earned-income tax credit would provide more support for
the working poor and would be pro-business at the same time. And
pre-kindergarten education, which the president proposes to make
universal, has been shown in rigorous studies
to strengthen families and reduce poverty and crime. Why settle for
half-measures when such truly first-rate policies are well understood
and ready to go?
Christina D. Romer is an economics professor at the University of
California, Berkeley, and was the chairwoman of President Obama’s
Council of Economic Advisers.
President Obama suggested increasing the minimum wage to $9 an hour. There is no guarantee that the Congress will approve this request once it is officially made by the White House. The US minimum wage was $1.60 in 1968 while it is currently $7.25 , almost five times as much. So why is president Obama and so many others concerned about raising it some more? I am sure that all of you realize that what counts is not the nominal wage but the real one. This simply means that the $1.60 of 1968 is equivalent to $10.53 in 2012 dollars. So as you can see the minimum wage in the US has been declining over the years instead of either increasing or ,at a minimum, maintain its purchasing power. The following is a short article by Ralph Nader that speaks to the issue of minimum wage and where it should be.
How could Barack Obama say, in his State of the Union speech,
“let’s declare that in the wealthiest nation on earth no one who works
full-time should have to live in poverty, and raise the federal minimum
wage to $9.00 an hour”?
Back in 2008, Obama campaigned to have a $9.50 per hour minimum wage
by 2011. Now he’s settling for $9.00 by 2015! Going backward into the
future is the price that poverty groups and labor unions are paying by
giving Mr. Obama a free ride last year on this moral imperative. How can
leaders of poverty groups and unions accept this back-of-the-hand
response to the plight of thirty million workers who make less today
than what workers made 45 years ago in 1968, inflation adjusted?
But, of course, the poverty groups and labor unions chose not to
mobilize some of the thirty million workers who grow our food, serve,
clean up and fix things for us to push for a meaningful increase in the
minimum wage before Election Day.
It gets worse. The Obama White House demanded “message discipline” by
all Democratic candidates. That meant if Obama wasn’t talking about
raising the minimum wage to catch up with 1968, none of the other
federal candidates for Congress should embarrass the President by
speaking out, including Elizabeth Warren, of all people, who was running
for the U.S. Senate from Massachusetts. Catching up with a 1968 federal minimum wage
of $10.50, inflation adjusted, should be a winnable goal this year. Once
the media starts regularly reporting on the human consequences of
unlivable wages, and once the entry of more and more of the thirty
million workers to marches, rallies and town meetings grows, neither the
Republicans nor the Blue Dog Democrats will be able to stop this drive.
It didn’t matter that the U.S. had the lowest minimum wage of any
major western country (Australia is over $15, France over $11, and the
province of Ontario in Canada is $10.25 – all of these countries also
have health insurance for all).
It didn’t matter that several cities and 19 states plus the District
of Columbia have higher minimums, though the highest – Washington state –
reaches only to $9.19.
It didn’t matter that two-thirds of low-wage workers in our country
work for large corporations such as Walmart and McDonald’s, whose top
CEOs make an average of $10 million a year plus benefits. Nor did it
matter that these corporations that operate in Western Europe, like
Walmart, are required to pay workers there much more than they are
paying Americans in the United States where these companies got their
start.
Haven’t you noticed how few workers there are in the “big box” chain
stores compared to years ago? Well, one Walmart worker today does the
work of two Walmart workers in 1968. That is called a doubling of worker
productivity. Yet, many of today’s Walmart workers, earning less than
$10.50 an hour, and are making significantly less than their
counterparts made in 1968.
Nobel-Prize-winning economist Joseph Stiglitz, told me that minimum
wage policy relates intimately to child poverty. Single moms with
children on a shrinking real minimum wage “translates to child poverty”
and is “creating another generation” of impoverished people.
The arguments for a higher minimum wage, at least to reach the level
of 1968, are moral, political and economic. James Downie writing in The
Washington Post provided five reasons to raise the minimum wage: “1) it
will help the economy; 2) it reduces poverty and inequality; 3) it
reduces the ‘wage gap’ for women and minorities; 4) indexing the minimum
wage is, well, common sense; and 5) it’s consistent with American
values.”
Downie gives historical perspective on just how far our economic
expectations have slid when he quotes Theodore Roosevelt at the 1912
Progressive Party convention:
“We stand for a living wage…enough to secure the elements of a normal
standard of living – a standard high enough to make morality possible,
to provide for education and recreation, to care for immature members of
the family, to maintain the family during periods of sickness, and to
permit a reasonable saving for our old age.”
In the ensuing 100 years, worker productivity has increased about
twentyfold. Why then are not most workers sharing in the economic
benefits of this productivity? With other worker advocates, we chose to
demonstrate on Feb. 12, 2013 before the headquarters of the U.S. Chamber
of Commerce whose business coalition opposes increases in the minimum
wage while its members report record profits and boss pay. And before
the headquarters of the large labor federation – the AFL-CIO – we urged
well-paid union leaders to devote more of their power and resources on
Congress and the White House to lift up the minimum wage for those they
like to call their “brothers and sisters,” from the ranks of the working
poor.
The last time – 2007 – a higher minimum wage law was passed under the
prodding of the late Senator Edward Kennedy, nearly 1,000 business
owners and executives, including Costco CEO Jim Sinegal, the U.S.
Women’s Chamber of Commerce CEO Margot Dorfman (two thirds of low-income
workers are women), and small business owners from all 50 states signed
a “Business for a Fair Minimum Wage” statement.
It read: “[H]igher wages benefit business by increasing consumer
purchasing power, reducing costly employee turnover, raising
productivity, and improving product quality, customer satisfaction and
company reputation.”
Listen to those words, Walmart! You badly need to improve your reputation, given your recent major missteps.
Catching up with a 1968 federal minimum wage of $10.50, inflation
adjusted, should be a winnable goal this year. Once the media starts
regularly reporting on the human consequences of unlivable wages, and
once the entry of more and more of the thirty million workers to
marches, rallies and town meetings grows, neither the Republicans nor
the Blue Dog Democrats will be able to stop this drive. Congressional
districts all have many such workers in their districts and polls show
70 percent popular support for raising the minimum wage. That includes
millions of workers who call themselves conservatives.
The April Congressional recess – the first two weeks of the month –
will be the first opportunity to show up where it counts – at the town
meetings held by senators and representatives back home. Filling those
seats usually requires two to three hundred local voters. If workers
rally, by the time the lawmakers go back to Congress, they’ll have a
strong wind to their back to face down the lobbies for greed and power,
who have money, but don’t have votes.
Check out our website timeforaraise.org and join this long overdue initiative.
