Doing the Bare Minimum

Policy

When it comes to raising minimum wages, the solution is anything but simple

by Alex Jenson

The minimum wage is often discussed, especially among those who work minimum wage jobs. Many people have probably worked for minimum wage at some point in their lives, whether over the course of a summer job or as a way to make ends meet. In the aftermath of the presidential campaign by progressive Sen. Bernie Sanders, the idea of a $15 minimum wage has become hotly debated.

The federal minimum wage was first established by President Franklin Roosevelt during the New Deal. It was initially 25 cents an hour, about $3.40/hour in today’s dollars. The rate was increased in the 1960s and has remained at a fairly constant level of purchasing power of $7-$8 per hour by today’s standard since.

Concerns Over Raising the Minimum Wage

Currently, about 1.4% of the workforce makes minimum wage, according to Robert Ordway, chief economist of the American Legislative Exchange Council (ALEC), an association of conservative state legislators that advocates free-market policies. According to Ordway, a majority of minimum-wage earners work in retail and food service industries. However, these types of jobs have been in decline, and while new jobs have appeared, they often require enhanced skill-sets like computer competency. As technology advances, Ordway argues, increases in the minimum wage risk displacing workings at a faster rate.

“Pushing for increased wages for entry level work will not only expedite the use of technology,” Ordway said. “It will permanently put people out of work.”

Because low-skill labor can be increasingly automated, raising the minimum wage without a corresponding increase in that labor’s value incentivizes businesses to save money by automation, reducing the number of available entry-level jobs. This has occurred in New York, for example, where increases in the minimum wage have prompted the introduction of automated kiosks. At the same time, in Ohio, the state Restaurant Association announced that many of its members would reduce the number of hours they offer to employees if the minimum wage was raised to $10 an hour.

In 2014, the nonpartisan Congressional Budget Office released a study on the projected consequences of raising the federal minimum wage to $10.10 an hour. The CBO estimated 500,000 jobs would disappear with an increase of that level.

Supporters of an Increase in the Minimum Wage

In contrast to those who argue an increase in the minimum wage will displace workers, others support an increase as a way to boost incomes for low-wage workers. Similar to Sen. Sanders’ position, the Economic Policy Institute (EPI), a liberal think-tank associated with the labor movement, fully endorses a $15 minimum. According to the Institute, raising the minimum to $15 would directly lift the wages of 22.5 million workers, and indirectly raise wages for 19 million more. An increase to $15 per hour would allow a single minimum wage income earner to support a family of four above the poverty line. Additionally, over 50% of the beneficiaries would be individuals age 25-54, while primarily benefiting African Americans, Hispanics and women.

While EPI and others advocate a $15 minimum wage, others take a moderate position between those who favor the $15 rate and those who support the current $7.25 federal standard. In a 2015 op-ed, Harry Holzer, a senior fellow at the Brookings Institute and former chief economist of the U.S. Department of Labor during the Clinton

administration, expressed concerns about raising the minimum wage to $15. Among other effects, he argued such a rate would incentivize movement over borders, thus likely displacing low-wage workers. In contrast, Holzer favored a more modest increase to around $10 per hour.

Our Modern Workplace and a Living Wage

Some economists, like Ordway, argue minimum wage jobs are not supposed to be sustainable for careers. They believe minimum wage jobs are supposed to prepare and incentivize inexperienced workers to increase their skill set and move to higher-paying positions. The reality, however, is that some people do have to support themselves and their families with minimum wage jobs, or jobs that pay below the cost of living for their area.

Though the two are often discussed together, minimum wage and a living wage are not the same. In contrast to the minimum wage, a living wage is high enough to place an individual and their dependents above the poverty line, and maintain a typical standard of living. The Massachusetts Institute of Technology operates an online living wage calculator, which estimates the cost of living by location and then calculates the living wage and poverty wage for an individual working full-time based on number of dependents.

In Iowa, the “living wage” for a single adult living in Iowa, Polk or Ida counties is around $10. In New York’s Bronx and New York counties, however, the living wage is approximately $16, but in more rural Albany county the living wage drops to $11. Considering the minimum wage in Iowa is $7.25 an hour before taxes, the current minimum wage is well below the living wage for a single adult, much less a family.

The minimum wage debate is a thorny issue, with many different opinions and potential solutions floating around. While some support the current rate, others argue it needs to be raised to at least a livable wage to help those currently in poverty. What there is consensus on, is there no easy answer to the question of whether or not to raise the minimum wage, and if so, by how much – a situation that will continue to fuel debate among elected officials and others for years to come.

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