There’s been a lot of talk lately about raising the minimum wage. The federal standard is $7.25, but some states, like Illinois at $8.25, have set a higher bar. Some cities have even created their own. As of this writing, the city of Seattle is considering a $15 minimum wage ordinance.
President Obama in particular — and the Democratic Party in general — has been out stumping to raise the minimum wage to $10.10. That number, it turns out, doesn’t just materialize out of thin air. It is the amount necessary to raise a family of four out of the federal poverty level if worked a full, 40-hour week for 50 weeks during the year.
Some of this, of course is political. It is an election year and making Republicans look like wealthy and heartless misers is good populist politics. But, some of it is based in a historical context that is interesting to consider.
The minimum wage first came into law in America in 1938. It was just 25 cents then but that 25 cents had the buying power of $4.00 today. While it never got high enough to raise a family above the poverty level — as now proposed — it did get close in 1968 when earning the minimum wage then was like earning almost $11 per hour today.
Democrats claim that raising the minimum wage to $10.10 would pull millions of workers out of poverty and would reduce government spending by $4.6 billion per year because fewer people would be relying on food stamps.
They also say that this higher wage would put more money in the pockets of lower-income people, generating some $22 billion in new economic activity annually. It would be particularly helpful to women, they say, because two-thirds of minimum wage workers are females.
And, Dems claim, boosting the minimum wage is broadly supported by economists, the general public and even small-business owners.
Republicans, on the other hand, refute all of these claims and project that raising the minimum wage would have the opposite effect that Democrats hope for.
First, they say, very few people actually make minimum wage and most of them do so only temporarily. Most minimum wage jobs, according to them, are entry level positions and those who prove themselves worthy move beyond minimum wage in a year or less. These jobs, however, are very important as they provide the first rung on a ladder of upward mobility. They add that one of the prime laws of economics is that demand falls as prices rise. If you raise the minimum wage, they say, employers will reduce employment, thereby removing the bottom rung from that ladder of upward mobility.
Not only that, they claim, but a higher minimum wage attracts more affluent teenagers into the job market, further reducing the job prospects of those who can command no higher wage.
They do agree with the Democrats on one thing: higher wages means less people on food stamps and other types of safety net programs. But, they say, this ends up hurting the very people liberals are trying to help because their higher earnings fall short of offsetting losses in public aid.
The end result, Republicans say, is that raising the minimum wage will not help the working poor; will not reduce poverty; and will raise unemployment.
Both sides claim plenty of economic analyses to bolster their arguments. It seems that if you shop around enough, you can find an economic guru to support just about any position you want to take. Now the Illinois General Assembly plans to ask the voters what they think about a $10 minimum wage. You know what they say about opinions—everyone has one and they all stink.
It seems to me that the only opinions that really matter in this debate are those of the employers of minimum wage workers. The fundamental law of economics that demand decreases as prices rise is true —but only to a point. I doubt, for example that raising the minimum wage by 10 cents would cause employers to lay off any workers at all. But I have no doubt that if you raised it by $10 it would. So what is the breaking point? Only those employers know for sure.
So, I would like to conduct a poll to get their opinion. If you employ minimum wage workers in your company, please go to our website, www.ibjonline.com and let us know at what point you would start cutting employment. It will take less than 60 seconds and we’ll be back with the results in the July issue. To paraphrase a local TV newsman, “Let us know what you think. After all, you’re paying for it.”
Alan J. Ortbals is president and publisher of the Illinois Business Journal.