Nel's New Day

February 25, 2013

Reasons to Raise the Minimum Wage

In his State of the Union address last month, President Obama dropped a bomb shell when he recommended increasing the minimum wage from $7.25 to $9.00 with subsequent increases for inflation. The far-right had screaming fits about this action losing jobs, destroying the economy, and decimating the wealthy.

What would be the effect of this increase? An additional $18 billion in local economies, added tax revenue, and stabilized families who could either keep their homes or find one. Thirty million people across the country make less than $9 per hour. Nearly five million people earn just $7.25, grossing $15,000 a year. The loss of manufacturing and public sector jobs has put more and more people at or close to minimum wage. With a wage of $9 per hour, a person could gross $18,000 per year.

Anecdotal evidence from the 20 states where the minimum wage is higher than the federal rate indicates no issues with job loss linked to salaries. In fact an increase in minimum wage may actually help through reduced labor turnover, significantly saving costs.

Every decade for the last half century, the minimum wage has fallen below inflation, making $7.25 much lower than its equivalent in the 1960s. Yet worker productivity has increased five-fold within the past 20 years. The profits go only to corporations and the wealthy so that they can stash is overseas.

Wal-mart employs 1.4 million U.S. employees, which comprises 1 percent of the U.S. working population. The company’s net profit of $15.7 billion is $11,200 net profit per employee, about 12% higher than the average profit-per-employee for privately-held companies in 2009. A 20-percent increase in wages will allow their employees to buy far more things from Wal-Mart while dropping the net profit to almost $13 billion without any extra sales.

An examination of four successful companies by Zeynep Ton shows the benefits of higher wages. High-performing employees, for example those at Costco who are paid much more than those at Wal-Mart, lead to good operational execution and thus high sales and healthy profits. By contrast at Wal-Mart, low labor budgets lead to poorly trained, poorly motivated, understaffed work forces, which then lead to poor operational execution, resulting in poor sales and razor-thin profit margins. This problem is evident with a recent drop in sales for Wal-Mart:  “February (month to date) sales are a total disaster… the worst start to a month I have seen in my… 7 years with the company.”—Jerry Murray, Wal-Mart’s vice president of finance and logistics.  

Even The American Conservative thinks that the U.S. government should raise the minimum wage, perhaps to $10 or “more likely $12 per hour.” The first rationale is that most minimum-wage jobs in this country  are retail or support services and thus cannot be outsourced. “Perhaps consumers would pay 3 percent more for Wal-Mart goods or an extra dime for a McDonald’s hamburger, but most of the jobs would still exist and the price changes would be small compared to typical fluctuations due to commodity and energy prices, international exchange rates, or Chinese production costs.”

The article points out that minimum wage in Canada is “well over $10 per hour,” France has more than $12, and Australia has nearly $16.50 with 5 percent unemployment.

As most economists agree, “raising the annual income …  by eight or ten thousand dollars would immediately send those same dollars flowing into the regular consumer economy, boosting sales and general economic activity. In effect, the proposal represents an enormous government stimulus package, but one targeting the working-poor and funded entirely by the private sector.”

To show that even big business wants a higher minimum wage, the article explains why Wal-Mart lobbied Congress in 2005 for an increase. The management of this company knows that their employees can’t even afford to shop at their own stores. But if they raise wages without a mandate, they’ll have to raise prices, losing business to competitors. If everyone has to increase wages, prices will go up everywhere. . If Wal-Mart can raise salaries, it can bring in about $1.3 billion in revenue while paying out just half that to its employees.

Increasing the minimum wage for people in the lower income strata would greatly help Social Security, Medicare, and other government programs funded by the larger paychecks. The government would have to pay less for Federal Earned Income Tax Credit (EITC). “Private companies should fund their own payrolls rather than rely upon substantial government subsidies.” I agree with these conservatives!

The same companies that complain about increased worker wages have no problem increasing executive salaries, dramatically shifting the distribution of income. During the 35 years before Ronald Reagan’s two presidential terms, the top one percent of U.S. households took an average of 10 percent of the nation’s income. By the time that Bush I took over, the top was given 15.5 percent of the income, and 12 years later when Bush II was appointed to president, this percentage changed to over 20 percent. When the recent recession let up, the three largest employers of minimum wage workers, Wal‐Mart, Yum! Brands (Pizza Hut, Taco Bell, and KFC), and McDonald’s, all more profitable, awarded their top executives multi-million dollar compensation packages.

The GOP should be happy that the president recommended only $9 per hour. Some people suggest a greater increase, as much as $12.25 that would raise the annual salary to $25,000. According to one study, the cost to major retailers would be $20.8 billion, about 1 percent of the sector’s $2.17 trillion in annual sales. The raise would add $4 billion to $5 billion in annual retail sales because workers have more money.

“If retailers pass half the costs of a wage raise onto their customers, the average household would pay just 15 cents more per shopping trip — or $17.73 per year,” the study found. “If firms pass 25 percent of the wage costs onto their customers, shoppers would spend just seven cents more per shopping trip, or $8.87 per year.”

Nearly three-fourths of likely voters want a $10 minimum wage attached to inflation.  A 56% majority of voters believes that increasing the minimum wage would help the economy, compared to just 21% who say it would hurt the economy. Another 16% say it would have no impact.  Attacks against the minimum wage on fail to resonate with voters.

In rejecting the idea of raising the minimum wage, Republicans show that they have a low regard for workers who make so little money. The GOP calls them “takers” because they might not survive without Medicaid and food stamps. These people who make so little money are then derided because they won’t take responsibility for earning a living. Labor Day has always celebrated the work of laborers, but last fall House Majority Leader Eric Cantor (R-VA) praised the business owners, ignoring the real workers.

Much more must be written about the minimum wage. But for today, I’ll end  with a map showing how many hours a month each person making minimum wage must work to pay for an apartment:

hours needed apartment

2 Comments »

  1. When did the recession let up? I must have missed that.

    Like

    Comment by Mary Eckel — June 29, 2013 @ 10:40 AM | Reply

  2. Exactly: “The same companies that complain about increased worker wages have no problem increasing executive salaries, dramatically shifting the distribution of income.”

    Like

    Comment by Lee Lynch — March 1, 2013 @ 11:39 PM | Reply


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