Raising the Minimum Wage
By Nicole FeibelmanPublished November 9, 2014By Nicole Feibelman, 11/9/14
The last time Congress voted to raise minimum wage was five years ago. Since then, the US has endured recessionary pressures and faced increases in the cost of life essentials such as gas, college tuition and groceries. Yet the wages of the bottom fifth remain stagnant even though Americans are working harder, more productively, and with more education than ever.
It is morally incorrect that a citizen of the US who works diligently for long hours can still struggle to support his family and is still limited by the effects of poverty. As work hours have increased and government support has become significantly more modest, low-income household have become increasingly reliant on earnings from work. Welfare payments have declined from 18.7% to 13.2%, and as a result, the bottom fifth is extremely reliant upon wages, employer-provided benefits, and tax credits. Still, the majority of the 25 million low-wage workers in the US - 9 million of whom are parents supporting roughly 14 million children — are dependent on
labor market pay for the majority of their income. Still, they struggle to meet basic expenses like supporting their family. Meanwhile, wages for the top 1% have grown far faster than those of other wage earners, and policies have enabled labor standards and business practices to increasingly favor employers at the expense of workers, putting corporate profits and executive pay at an all-time high. Therefore, broad wage growth must be put on the political agenda in order to address a sundry of economic changes.
According to the polls, three-quarters of Americans are in favor of hiking the federal wage rate to $9/hour, with automatic increases tied to inflation. The Economic Policy Institute (EPI) estimates that a gradual increase to $10.10/hour by 2016 would afford 27.8 million workers a raise. This rate is hardly unreasonable, minimum wage would amount to almost $10.70/hour today if it had kept up with inflation since 1968. Through the "ripple effect," workers currently earning between $10.10 and $11.50/hour would also see the probability of a wage raise. Studies have proven that this would increase productivity, lower turnover, and increase wages for 28 million workers, lifting over 900,000 people out of poverty. Every dollar increase in minimum wage has been estimated to inject $2,800 in new consumer spending by households over the following year. This would boost annual earnings by $7,700 to $20,200 per worker, which is enough to pull a family of three out of poverty.
Intensifying efforts to increase wages would not only provide benefits to the income of families in the bottom fifth, but also level income inequality, enhance social mobility, and boost macroeconomic growth by closing the shortage of aggregate demand for goods and services. The raise would decrease turnover, increase productivity, product quality, customer satisfaction, and company reputation, and restore consumer spending, which would in turn support sustainable economic recovery. An increase in employee wages in a case study at an airport demonstrated these effects: 35% of employers reported improvements in work performance, 47% reported better employee morale, 44% reported fewer disciplinary issues, and 45% reported an increase in customer service. Further evidence abounds in measuring the income gap across the country, which reveals less income inequality in states with minimum wages above the federal level.
While critics argue that this raise could ultimately hurt jobs and consumers, with a predicted loss of 500,000 jobs by 2016, that number only represents a 0.3% decrease in employment. Further, White House economists contend that the effect could result in? near zero job loss since business' higher payroll costs would be offset by lower turnover and higher productivity. Further, the benefits of raising and indexing the minimum wage are estimated to outweigh the costs by an overwhelming 4:1 ratio.
Evidence strongly suggests that putting money in the pockets of low-wage workers who have little choice but to spend that money will culminate with a boost to consumer spending and an increase in aggregate demand, ultimately driving economic growth. Despite President Obama's recent declaration to make raising the minimum wage a huge priority and his executive order to increase it to $10.10 for federally contracted workers, Congress had taken little action.
Therefore, the White House should make an effort to underscore the urgency of making the minimum wage a national policy priority, and take effective action through policy implementation.