There has been a strong push this holiday season (really dating much farther back) by a variety of labor groups seeking higher minimum wages. Specifically, Walmart employees, Fast-Food Workers, and most recently low-level financial sector employees have taken to the streets to make their demands for “livable wages” heard.
As one who believes in the positive externalities of a more egalitarian society, as well as a proponent of collective action, I am happy to see people using the tools at their disposal to overcome power-asymmetries that have persisted for decades. It would appear that I am not alone in this sentiment–according to Gallup polling, 76% of Americans support raising the minimum wage to $9/hr (69% support raising the minimum wage to $9/hr and indexing the minimum wage to cost of living increases).
Furthermore, the main fear associated with raising minimum wages–that it will lead to higher unemployment–has been debunked:
The idea of fairness has been at the heart of wage standards since their inception. This is evident in the very name of the legislation that established the minimum wage in 1938, the Fair Labor Standards Act. When Roosevelt sent the bill to Congress, he sent along a message declaring that America should be able to provide its working men and women “a fair day’s pay for a fair day’s work.” And he tapped into a popular sentiment years earlier when he declared, “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”
Support for increasing the minimum wage stretches across the political spectrum. As Larry M. Bartels, a political scientist at Vanderbilt, shows in his book “Unequal Democracy,” support in surveys for increasing the minimum wage averaged between 60 and 70 percent between 1965 and 1975. As the minimum wage eroded relative to other wages and the cost of living, and inequality soared, Mr. Bartels found that the level of support rose to about 80 percent. He also demonstrates that reminding the respondents about possible negative consequences like job losses or price increases does not substantially diminish their support.
It is therefore not a surprise that when they have been given a choice, voters in red and blue states alike have consistently supported, by wide margins, initiatives to raise the minimum wage. In 2004, 71 percent of Florida voters opted to raise and inflation-index the minimum wage, which today stands at $7.79 per hour. That same year, 68 percent of Nevadans voted to raise and index their minimum wage, which is now $8.25 for employees without health benefits. Since 1998, 10 states have put minimum wage increases on the ballot; voters have approved them every time. But the popularity of minimum wages has not translated into legislative success on the federal level. Interest group pressure — especially from the restaurant lobby — has been one factor.
The social benefits of minimum wages from reduced inequality have to be weighed against possible costs. When it comes to minimum wages, the primary concern is about jobs. The worry comes from basic supply and demand: When labor is made more costly, employers will hire less of it. It’s a valid concern, but what does the evidence show?
For the evidence, lets turn to Dr. Krugman, who succinctly explains the evidence against this valid concern, and how “good” this evidence is:
Still, even if international competition isn’t an issue, can we really help workers simply by legislating a higher wage? Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.
It’s important to understand how good this evidence is. Normally, economic analysis is handicapped by the absence of controlled experiments. For example, we can look at what happened to the U.S. economy after the Obama stimulus went into effect, but we can’t observe an alternative universe in which there was no stimulus, and compare the results.
When it comes to the minimum wage, however, we have a number of cases in which a state raised its own minimum wage while a neighboring state did not. If there were anything to the notion that minimum wage increases have big negative effects on employment, that result should show up in state-to-state comparisons. It doesn’t.
So a minimum-wage increase would help low-paid workers, with few adverse side effects.
But what do these “egg-heads”, in their “ivory-towers” know? They are out of touch with the real world! The person who suffers from minimum wage increases is not the academic, or even the large corporation. It is the small business owner who suffers–Mom and Pop! Well, Gallup polled small business owners on their thoughts of minimum wage increases, and responses were not as overwhelmingly negative as one would think:
They were also polled on the effects of a minimum wage increase on how they invest back into their business:
The majority of small business owners responded they would not reduce their current workforce (64%) or reduce worker benefits (60%) if the minimum wage was increased. The largest negative effect would be a reduction in capital spending (38%). However, in the context of a divergence of worker compensation from productivity, and a declining share of income going to labor (in favor of capital), perhaps such a re-balancing is not such a bad thing.
Small business owners are not thrilled about the prospect of a minimum wage increase–they are not expected to be. However, the fact that nearly half support raising the minimum wage says something about small business owners.
Perhaps they recognize peoples purchasing power is tied to their wages, so increasing wages will eventually lead to higher sales (especially considering minimum wage employees have a much higher marginal propensity to consume than wealthier people). Or perhaps these people are simply more in touch with what happens in the communities they live in than their big-business contemporaries. They know people living on the minimum wage aren’t lazy people waiting for a government handout; they are their friends, family, and customers. Perhaps they believe that more egalitarian communities are friendlier, safer places, and are willing to pay a little extra in order to achieve that goal.
Increasing the minimum wage is overwhelmingly popular, and more popular among small business owners than one would expect. Furthermore, it would save billions of dollars in Welfare programs by ending an implicit subsidy for businesses who pay non-livable wages and stimulate the economy by redistributing income to people who are more likely to spend it.
The time to act has come; people are literally taking to the streets. It is also important to index the minimum wage to cost of living increases, so we do not experience the declining real minimum wage we have had for the past 4 decades. Indexing also avoids a political battle every-time the cost of living changes (which it constantly does).
I for one am interested and excited to see the myriad benefits that decreasing poverty rates and reversing the trend of increasing income inequality have on American society as a whole.