Waging Wars

While economists sway to and fro like the ebbing tides of a fiscal ocean, one thing remains solid and unmoving to me. The reality is that income inequality leads to disenfranchisement and unrest in the lower income areas of our country. This has been proven time and time again not only in the history of our nation, but the world itself. In our day and age, money is the prime resource, and when resources are low, tempers run high. Raising the minimum wage is a hot topic among economists; in fact, it’s the surest way to divide a room full of them right down the middle. This issue has seemingly stumped lawmakers on the national level as the nation’s minimum wage stands at $7.25 per hour and hasn’t moved since 2009. This policy of procrastination seems to be perpetuated by both major political parties as it is an unpopular fight on all fronts. Though a Gallup poll conducted in November of 2013 reveals that 91 percent of Democrats support increasing the federal minimum wage to $9.00, so do 58 percent of Republicans. They also suggest pinning the minimum wage to the consumer price index, in order for it to keep pace with inflation. That way, as the economy shifts, so would the minimum wage. Prior to 2007, the federal minimum wage had been stagnant for ten years. This oversight has contributed to the current turbulence in our global market. The less money people have to spend, the larger the wage gap becomes, leading to less currency in the market and thus a shrinking economy. Fears that raising the minimum wage would flood the market with currency and lead to drastic costs of living are very shortsighted. There are several steps that must be taken to revive our ailing economy. One of the first steps should be to raise the minimum wage and index it for future generations.

With arguments on either side spanning from statistic generalizations to mathematical obfuscations, the fact is that what we have been doing is obviously not working. The opposition argues that increasing the minimum wage will only put more money into circulation, increasing the cost of living. What they fail to realize are the benefits of having a more affluent lower class. Economic analyst David Cooper of the economic policy institute said this on the subject of the effect of raising the minimum wage on low-wage workers: “Economists generally agree that low-wage workers are more likely than any other income group to spend any additional earnings they receive, largely because they must in order to meet their basic needs. Higher-income individuals, corporations, and beneficiaries of corporate profits are more likely to save at least a portion of any additional income. Thus, in a period of depressed consumer demand, raising the minimum wage can provide a modest boost to overall economic activity because it shifts income to workers who are very likely to spend it immediately.” As the wage gap widens, it is becoming clear that the middle class, if there is one still, is fading quickly. A higher minimum wage is a necessity for the lower class youth of tomorrow. With people below 25 making up more than half of minimum wage earners in the country, it would be their futures we would be investing in. With college tuition, student debt, and cost of living already huge detriments to the fiscal stability of students, a below CPI minimum wage is unlivable. This has become crystal clear to those college students fortunate enough to have a full-time job. With no experience or skills, college students, the very foundation upon which this whole system is built, struggle to make ends meet while they struggle with their studies. Once they’ve graduated, the same system turns on them and demands payments on their loan. Despite their often rushed and poorly packaged education, most college students still spend years in the minimum wage bracket. This is due to more experienced workers attaining the higher paying jobs in a nation that has such a high turnover rate.

The consumer price index fluctuates according to the market prices paid by typical customers for goods. This links it to the cost of living in a very real and tangible way. Though the opposition argues that automating increases in wages could lead to an inflated cost of living, it’s clear that the cost of living is already unreasonably inflated. This was caused by lack of oversight in wage increases according to the cost of living in the first place. It seems that the majority of people across the board agree that the minimum wage must be increased, but without constant review changes like this can spiral. This is why indexing is so important; without constant monitoring, wages would soon get away from us again. Indexing the federal minimum wage would ensure that we are no longer being reactive and instead are being proactive in solving this before it even becomes an issue again. Furthermore, despite the inflation that would result from the raise in minimum wage, this would only be hurtful momentarily. As time moves on and the lower class begins to make more money, they will also spend more money. This will lead to a natural stimulus in the economy that will create jobs and opportunity for those willing to put in the work. As the workplace stands now, every business is on alert, the market is unreliable, and small businesses are constantly on the brink of obscurity. This has all businesses, not just smaller ones, running their operations with a skeletal staff who are typically already doing more than their job description. In the long run, a higher minimum wage would stimulate our economy and generate jobs, but the steps must be taken to motivate the lower class into action.

One of the surrounding factors in the minimum wage debate is one that generally gets more attention than the bigger picture. Job creation and stability is a nationwide issue that is directly linked to the broader debacle of raising the minimum wage. Economists opposed to raising the minimum wage like Jonathan Meer and Jeremy west of Texas A&M University use arguments like this. “The results for job creation show that, in equilibrium, any supply-side effects on search (and the potential increase in the quality of employer-employee matches) do not overcome the negative demand-side effects of higher labor costs…More importantly, we find that on net the minimum wage meaningfully affects employment via a reduction in the rate of long run job growth.” However, there seems to be no substantial evidence that this is the case. In fact according to a letter signed by 600 economists, including seven Nobel economists and six former presidents of the American Economic Association. “Increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.” The idea that a raise in the minimum wage would cost jobs is historically inaccurate; every time our country has raised the minimum wage, our economy has grown. Business owners themselves seem to agree that a raise in the minimum wage would increase profits. This would allow them to be more competitive with their prices and sales. In a Small Business Majority poll published in March of 2014, 57 percent of business owners who were mostly Republicans supported raising the minimum wage to $10.10 by 2016. They also agreed that indexing its yearly adjustment would be a good idea too. Only a few months later another poll, by the American Sustainable Business Council revealed that 60 percent of entrepreneurs support the raising and indexing of the federal wage. With every day that passes, it becomes more evident that it is only a matter of time.

We can even look to our past for guidance as the minimum wage in 1981 was only $3.35 per hour, but when adjusted for inflation, this would be more than $8.00 an hour today. This means that a minimum wage earner in 1981 was effectively making more money than a minimum wage worker today. Economists and small business owners agree that putting more money into the hands of the people is a great way to promote the local economy. On May 5th of 2015, Pittsburgh based small business owners testified before a state senate hearing. They provided examples from their own business models illustrating that in the long run the turnover rate for their employees has plummeted. This saves them money on employment and training costs, as well as boosts productivity noticeably. One of the owners who testified is Bobby Fry, co-owner and CEO of Bar Marco and the Livermore restaurants in Pittsburgh, who had this to say of the results of his own wage raises: “…We did away with gratuity and began paying our employees a starting salary of $35,000 plus benefits. Counter to the restaurant industry’s conventional wisdom, paying above the current minimum wage leads to lower turnover, better employee performance and customer service, greater inventory controls, and higher quality product — all of which saves my business money.” This first-hand account of what a raise in wages would mean for employees across the board reveals only more evidence to support our raising them. The turnover rate in the current economy is constant, a fact for which one does not have to look far to confirm. But raising the wages of employees lowers that dramatically and increases the productivity of the worker. We must take a stand and implement these changes expeditiously or pay the price of an unstable and unproductive workforce.

If the federal minimum wage is not raised, it seems that the middle class of our nation will cease to exist. Instead we may be faced with a wage gap that could be socially and politically catastrophic. We must look to our history and learn from the mistakes of our past and the wisdom of our leaders. "It is but equity...that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged" (Adam Smith, The Wealth of Nations, 1776). This quote, while seemingly obvious, is very important to our current predicament as a nation. We are living in an era when 14 percent of Americans live below the poverty line. The federal minimum wage actually places people in poverty, this is the most basic way to answer the question: “Should we raise the minimum wage?” Should the earnings from minimum wage not place people above the poverty line? We must act now to redefine our future with job creation and stability for minimum wage workers everywhere. Buffer the earnings of small businesses by putting more money in the pockets of their customers. Ensure rapid payment of loans taken out by young inexperienced students in the workforce. But most importantly, we must solidify our position in the world as a country for the people, of the people and by the people. Raising the minimum wage would show the world that America is still the most abundant country on Earth chosen by the people.

Sources:

5th quote from Adam Smith from his book The Wealth of Nations

http://www.businessforafairminimumwage.org/news/00764/pa-business-owners-testify-support-raising-minimum-wage-state-senate-hearing - 4th quote Bobby Fry may 2015 senate hearing

http://www.businessforafairminimumwage.org/news/00573/national-poll-small-business-owners-favor-raising-federal-minimum-wage - American Sustainable Business Council 2014 poll

http://www.smallbusinessmajority.org/small-business-research/minimum-wage/small-business-support-increasing-minimum-wage.php?gclid=COrMl9nzzMUCFRJqfgod-gkAoQ – Small Business Majority 2014 Poll

http://www.ncsl.org/research/labor-and-employment/maximum-divide-on-minimum-wage.aspx -general stats

http://www.epi.org/minimum-wage-statement/ - 3rd quote Letter signed by 600 economists

http://www.dol.gov/whd/minwage/chart.htm - chart of history of raises in federal minimum wage

http://www.dol.gov/minwage/mythbuster.htm - Minimum wage myths

http://blogs.wsj.com/economics/2014/01/30/should-the-minimum-wage-be-raised-economists-weigh-in/ - first quote David Cooper/2nd quote Jonathan Meer and Jeremy west