SalemNews.com, Salem, MA

February 26, 2014

Watson: Raising the minimum wage has pros and cons

Brian T. Watson
The Salem News

---- — Last week, I wrote about unemployment benefits and my hope that Congress votes to reinstate some extension of federal assistance that supplements the state average of 26 weeks of jobless payments.

There are arguments about how long is too long — regarding 50 or 73 or even 99 weeks of benefits — but I think that the preponderance of the evidence shows that longer federal assistance pays for itself in many ways. Not least of which is the fact that unemployed workers are required to keep looking for a job in order to qualify for the benefits.

The subject of today’s column — establishing a wise minimum wage level — again embodies the same sort of competing economic analyses as are involved in sorting out the best duration for unemployment payments.

The arguments for raising the federal minimum wage (state minimums vary) are obvious. Currently set at $7.25 an hour, which is about $15,000 a year, the wage is woefully inadequate to live on. Many 40-hour-a-week, minimum-wage workers are forced to seek all kinds of government assistance. And many of them will work two — or even three — jobs, totaling 80 hours per week, in an effort to make a living.

Furthermore, as the nature of the economy has changed over the past 40 years, with globalization moving many industrial jobs to developing countries, a greater and greater percentage of the jobs left in America are low-paying retail and service jobs. That has meant that increasingly those jobs are filled by primary breadwinners who are relying on them to help support a household.

That trend has only accelerated since the Wall Street meltdown. Roughly half the jobs lost since 2008 paid between $38,000 and $68,000 a year. But 70 percent of the jobs added during the same period were at or near the minimum wage. So, the remunerative value of work itself is shrinking.

Opponents of increasing the wage say that it will cause jobs to be lost, or not created. That is probably true, to some degree. It is largely accepted that some number of entry-level jobs will not get created if wages are increased. These losses may affect teens disproportionately.

If we adopt the $10 minimum wage, the Congressional Budget Office estimates that there is a two-thirds chance that job losses would fall somewhere between zero and a million. But as you can see, that’s not very definitive (as the CBO itself cautions).

Calculating the effect of raising wages is difficult. There are conflicting approaches on how best to study the subject. Economists themselves are divided. Over the past several decades, roughly 75 serious research papers and studies have inconclusively debated the on-balance merits of raising the minimum wage.

We do know unequivocally that increasing the wage today to $10 per hour would give a raise to about 20 million workers. And although only about 30 percent of minimum-wage workers live in families near or below the poverty line, most of the other 70 percent are still within the broad working class.

It is also likely that paying workers more would have some stimulative effect on the economy, as most of those raises would get spent on consumption.

A negative aspect to raising the minimum is that it is likely to increase prices somewhat. Companies will attempt to pass along to consumers their greater labor costs. Some of that cost-sharing would be fair, especially with smaller businesses. But it also would be right for the larger businesses to examine their profits, dividends, efficiencies and executive pay to determine if — given the circumstances — all of those variables can be put into better balance with worker pay.

Take fast-food chains, for example, with millions of employees. About half of those workers receive government assistance, creating an annual bill of $7 billion for taxpayers. McDonald’s employees alone receive $1.2 billion in public aid. But this occurs while McDonald’s CEO Donald Thompson receives a salary of $14 million, and his workers receive $8 an hour. His compensation is 875 times the pay of his line workers.

Given the circumstances, this large an imbalance is unhealthy, unsustainable, economically unwise and corrosive to a democratic society. Economically, it can be demonstrated that this sort of gross income disparity comes at the expense of large numbers of workers at the bottom of the earnings ladder.

During the course of our 238-year-old capitalist society, Americans have always endorsed the value of hard work, individual initiative, entrepreneurship and personal success. And we support the notion that those pursuits will be rewarded, and that some people will become far wealthier than us. But periodically in that history, we have taken steps to ensure that the creative dynamism of capitalism and its relationship to labor doesn’t cross over into exploitation. It’s always a matter of balance.

So, on balance, I’d raise the minimum wage to $10. I’d also introduce a few, special, lower-wage categories for seasonal, temporary, entry-level and teen workers. Their wages would adjust upward with time on the job. I’d also increase the Earned Income Tax payments, which effectively assist the lowest-income workers. It will take simultaneous adjustments to many aspects of labor, taxation, welfare, business and finance to strengthen our economy.

Brian T. Watson is a Salem News columnist. Contact him at btwatson20@gmail.com.