December 16, 2013

Raising the minimum wage is needed, but may not be enough

There has been a lot of talk lately about raising the minimum wage as of late, especially with the coverage of food service workers protesting an increase to $15/hour. While many have balked at the notion and even labeled these workers negatively, from a historical perspective the wage increase issue is not really that far-fetched. 

As a teen, I went to work to help my parents with the bills and my own expenses, and times were tough then. When I was working my first job in 1985, the minimum wage was $3.35/hour, and working everyday after school and weekends, I barely made $100 in two weeks and after taxes. Now there was no way that I could have supported myself on those wages, but I do remember there were some of the adults who were working alongside me at the same rate of pay, and I didn't know how they did it.

Calculating that rate of pay now and adjusting it for inflation using the Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) Inflation Calendar, my rate of pay in 2013 dollars would be $7.27, two cents hire than the consumer minimum (you can verify the information by clicking here and here). How is it that the rate people are getting paid slightly less than it was almost 30 years ago, despite the rate of inflation going up in the same time period a whopping 117%? That was due to bad political decisions that failed to peg wages to inflation and kept them stagnant so that companies can control labor costs. In addition to these efforts to control labor costs, many low to medium wage jobs in the same time period have been exported to other countries, creating an even greater wage disparity.

While the demands of many to raise the wage to $15/hour may have come from noble intentions, doubling the wages immediately would be disastrous for the economy, especially for smaller businesses. The result would be many employers simply letting go of their staff or even worse, forcing them to go out of business entirely and forcing many to seek unemployment insurance and public assistance. So what is a fair and balanced policy to ease the economic disparities?

Many of the proposals being put out there are no more than a band-aid on a laceration, purely cosmetic and will force the working poor to continue to be at the mercy of others. The talks from the state and the nation on dueling rates are doing nothing but wasting time and hurting people. Here is a three-step recommendation for what could be done to ease in a raise for the working poor and give businesses time to adjust. 

  1. Raise the minimum wage to $9.00/hour in 2014. This has the same purchasing power as $4.38/hour in 1985 and while it doesn't make up for the last two and a half decades, it's a start.
  2. Peg wages to a percentage of inflation annually. Politics should not turn a blind eye to the plight of its citizens for political expediency, which has unfortunately become the norm for this generation. Tying wages to 50-75% of the inflation rate (50% when inflation exceeds 3% 60% between 2-3%, and 75% below 2%), would give the most vulnerable a better chance of escaping the cycle of poverty.
  3. Eliminate local, state, and national income taxes for everyone making 200% or lower of the federal poverty level (or an annual salary of $22,980 for an individual). This elimination will provide these individuals with more disposable income and localities can make this up by the increase in sales taxes as a result of greater spending. On a national level, the feds can absorb this small reduction easily by cutting spending in other areas. From a moral imperative, governments should not be in the business of using income taxes from the poor as a way to engage in untested policies, givebacks to lobbyists, or as incentives to large corporations anyway.
I'm sure that there are many arguments for and against these recommendations, but at least they are on the table. And like the saying goes, if you're not at the table, you might be on the menu. Lets make things right for the working poor now and not wait until the next decade like our predecessors have.

1 comment:

  1. As an economist, my NY belief is with the high tax and inflation NY brings, a min NY wage of 12.50 should be established.