Wednesday, April 16, 2014

The Fair Wage Argument

The following is a piece of a research paper that I had to do this semester that sort of explains why the minimum wage should be raised. Read, analyze, enjoy and give me a grade.

"While it is unusual for us to take a public position on a public policy issue of this kind, we simply believe it is time for Congress to take a responsible look at the minimum wage and other legislation that may help working families,"

Those are the words of former Wal-Mart CEO Lee Scott during a 2006 testimony before congress, discussing the need for an increased minimum wage, we are at that point again. Everyday in America, there are people who work full time, for minimum wage and despite working 40 or more hours in a week, can't afford to completely cover basics such as rent, utilities and food. As stated before, this problem can be helped by raising the minimum wage from it's current level of $7.25 an hour. In the richest country in the history of the world, we shouldn't have people working full time and still be in poverty. One way to reverse this is to increase the minimum wage. According to a February 2014 report by the nonpartisan Congressional Budget Office, increasing the minimum wage to $10.10 an hour could lift as many as 1 million people above the poverty line and off of government assistance, thus freeing up those funds to be used for others, and this is reinforced by a March 2014 study by Rachel West and Michael Reich of The Institute for Research on Labor and Employment (IRLE) at University of California at Berkeley which concludes that raising the wage would also save $46 billion in expenditures towards the Supplemental Nutrion Assistance Program(SNAP) over the span of ten years.

As expected, many would argue that increasing the minimum wage would slow down hiring, increase prices, which in turn would lead to fewer customers and even lead to layoffs in the fast food industry and other low wage industries. This argument is being presented by many of the executives in the restaurant industry, particularly the fast food industry. Of course this argument is refuted by a study by David Madland and Keith Miller of The Center for American Progress which analyzed the impact of raising the minimum wage on the overall economy, and according to their study, raising the wage would have a minimal at best effect on jobs. What this means is that people aren't going to get fired due to a higher minimum wage, and according to a 2011 study conducted by Dr. Timothy Richards of Arizona State University with help from Dr. Lisa Mancino at the U.S. Department of Agriculture entitled "Demand for Food-Away-From-Home: A Multiple Discrete/Continuous Extreme Value Model" showed that an increase in the minimum wage would probably increase prices by a slight amount, but it wouldn't stop many people from going out for fast food or hurt the bottom line of places like McDonald's which reported a profit of $1.5b in the third quarter of 2013, which according to the National Employment Law Project, is $300 million more than what McDonald's workers receive in public assistance every year while still holding down jobs.

Increasing the wage would not only get a lot of people off of food stamps, it would stimulate this sluggish and unstable economy. According to a 2011 study by the Chicago Federal Reserve Bank entitled "The Spending and Debt Response to Minimum Wage Hikes" by Daniel Aaronson, Sumit Agarwal, and Eric French∗, increasing the wage by just $1 an hour would lead to an extra $250 per quarter per houseld, per month, and an extra $700 per quarter in spending on average. Most of this spending is for long term, durable goods such as cars and furniture. This extra disposable income from a higher minimum wage could lead to billions in economic stimulus and President Franklin Roosevelt even called the minimum wage “an essential part of economic recovery,” in the 1938 State Of The Union speech.

The program given to everyone in attendance during 1963's March on Washington for Jobs and Freedom has a list of ten demands to help meet the goals of the organizers and attendees at the event. Goals 7 and 8 dealt with wages and goal number 8 specifically called for a raised minimum wage of $2 an hour,up 75 cents from the then current rate of $1.25, and in today's dollars, this would be over $15 an hour. Inflation is one subject that does not get a lot of discussion when it comes to the debate over wages. Over the years the American dollar has lost a lot of it's buying power and because of this, despite having a minimum wage that's $7.25 in most states, it's really like making 95 cents an hour back in 1963, when Martin Luther King and a myriad of other civil rights leaders were pushing for a minimum wage of $2. What this means is that people making minimum wage today are around 30% poorer than people making minimum wage 50 years ago.

Thanks to the rate of inflation, the cost of living has gone up dramatically during the last few decades making it increasingly difficult for people on the lower end on the wage scale to live comfortably. During the last five decades food prices have gone up drastically leading to many people turning to programs like WIC and SNAP for help covering this essential need. A dozen large eggs could be bought for 50 cents in the 1960's, but today, you'll be lucky to find a dozen eggs of any size for less than $2. The increased cost of living isn't just being felt in the price of things like eggs, ice cream and cookies, it's also effecting the cost of things such as rent, utilities, healthcare, child care, education, transportation and even entertainment. All of this can combine to make life difficult for people at the bottom of the wage scale and makes it nearly impossible to save up enough money to build an emergency fund for any unforseen circumstances.

In conclusion, the minimum wage is too low to sufficiently live on in this country and raising it would be a surefire way to help not only people making minimum wage, but America in a general sense and if something isn't done soon, we will continue to see the problems listed in this paper.

Works Cited
"The Effects of a Minimum-Wage Increase on Employment and Family Income" Congressional Budget Office, 18 February 2014.
Franklin Roosevelt. 1938 State of the Union Address
Rachel West and Michael Reich . "The Effects of Minimum Wages on SNAP Enrollments and Expenditures" March 2014
David Madland and Keith Miller. "Raising the Minimum Wage Would Help, Not Hurt, Our Economy." Study for The Center for American Progress. 13 December 2013.
Dr. Timothy Richards and Dr. Lisa Mancino. "Demand for Food-Away-From-Home: A Multiple Discrete/Continuous Extreme Value Model" 2011
Sylvia A. Allegretto, Arindrajit Dube, and Michael Reich, “Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data,” Industrial Relations 50 (2) (2011): 205–240.
McDonald's 3rd quarter earnings report, 2013
Daniel Aaronson, Sumit Agarwal, and Eric French∗, "The Spending and Debt Response to Minimum Wage Hikes" 2011
Various Authors, "March on Washington for Jobs and Freedom" 28, August 1963