We'd Pay You Less, But It's Illegal: The Minimum Wage Crisis

By Comrade Sloth

Every time increasing the minimum wage is discussed, it’s not long before someone introduces the argument that raising wages will hurt small businesses and lead to higher unemployment. But more and more reports are showing that these worries are completely baseless, a fear mongering tool used by the wealthy heads of corporations and their political allies to protect their unreasonably high profit margins.

First, it’s important to understand that the value of the minimum wage compared to the cost of living has dropped substantially. In 1968, the minimum wage was under $2 per hour, but in terms of spending value, that was equivalent to what $10.85 would be today. Now, the federal minimum wage sits at a meager $7.25: less than half of the $18.67 an hour that workers would be paid if that wage were indexed to worker productivity. Basically, as a nation we should be getting richer, not poorer, but the wealthiest 1 percent are the only ones seeing this kind of growth: their earnings have increased 275 percent over the past 30 years, and 95 percent of the income gains since the Great Recession have gone to the richest 1 percent.

Second, it’s important to recognize that pouring money into the lowest class of wage earners translates directly into economic growth, as those who make less money spend a much larger portion of their income. Imagine this scenario: someone spends a dollar at a gas station, then the gas station worker spends that dollar at a grocery store, then the grocery store pays its employee, then that worker spends that dollar at a car wash. The value of that dollar hasn’t changed, but it’s now contributed four dollars of fiscal growth into the local economy. Of course this is an oversimplified model, but it illustrates the concept that a dollar in the hands of someone who will spend it is worth much more to local industry than in the hands of someone who will save it.

Comedian Chris Rock offers his take on the minimum wage.

Comedian Chris Rock offers his take on the minimum wage.

Because of this, minimum wage earners are potentially the most promising investment we can make in our economy. A study conducted by economists at the Federal Reserve Bank of Chicago found that increasing this wage by just $1.75 an hour – well below the increase proposed by the Obama administration – would translate into an additional $48 billion in household spending the following year. Put into practice, we know that it works: the results of this study by the Economic Policy Institute show the strong correlation between past wage increases and the subsequent boost to consumer spending.

Third, we must acknowledge that the role of the minimum wage job in our economy has undergone a foundational change. Whereas low-wage hourly jobs used to be seen as a temporary station to provide spending money to teens and unskilled workers, these positions now make up nearly 60 percent of all jobs. Furthermore, the level of education possessed by low-wage hourly workers has seen a steady increase. Since the recession in 2008, the number of college graduates working hourly jobs has risen by 19 percent.

While all of these are excellent arguments for why our federal minimum wage requires a serious reconsideration, we would be remiss not to mention perhaps the most salient reason of all: that if profits rely on a business model that cannot provide a living wage to workers, that model is neither ethical nor sustainable. A full-time minimum-wage worker can expect to make about $13,000 a year, a dismal $7,000 below the poverty line for a household with two children. More than half of combined state and federal spending on public assistance goes to working families who fall below this line and don’t make a living wage, costing taxpayers $152.8 billion per year. For reference, that’s more than twice the federal budget for education. The minimum wage simply does not provide enough moneyfor working families to live on.

Fortunately, it seems that more and more people are now getting behind the idea of raising the minimum wage. Four out of five Americans support a raise to $10.10 an hour, and four out of five economists agree that the benefits outweigh the costs. Isolated trials of increasing wages in cities like Seattle and San Francisco have already taken place and seen little to no negative fallout in terms of price hikes on goods and services. But in order for America to experience economic growth at the levels predicted by such a wide majority of experts, citizens and policymakers alike will need to dispel the uncorroborated myths surrounding this necessary revision of policy.