It seems as though every few years the issue of raising the minimum wage is all over the news, with pundits on each side arguing about why it is either the best or worst idea they have ever heard. However this coverage rarely ventures deeper than partisan talking points meaning that the public often does not gain a deeper understanding of the issue. In this episode of the podcast we’ll take a deeper look at state and local minimum wages and try to not only understand the issue but also some of the controversies which surround it.
Before we can talk about the various opinions on the minimum wage we have to understand the policy which lies at the heart of the issue. In its most basic sense, state and local governments are allowed to set a minimum wage which all workers in their jurisdiction must receive. Generally these minimums will be higher in cities or states with higher costs of living, with the idea that setting a higher minimum compensates for the higher costs associated with living in that area. However, as the more observant among us will notice, there is also a national minimum wage within the US. This federal minimum was crafted with the same intent as its counterparts at the state and local level, aiming to ensure that everyone in the entire country receives reasonable compensation for the labor that they do. As a result, this federal minimum has become the de-facto minimum wage that everyone earns nationwide unless they happen to live in a state or municipality which has set a higher minimum.
The true issue of minimum wage policy arises when state and local governments move to increase whatever it may be in their area. But wait, if the federal government has already set a minimum for the country why should we still let state and local governments argue over what they think it should be? Unfortunately our lives cannot be this simple. Due to the nature of the our economy certain states and localities will have higher costs of living than others, which naturally leads many in these higher cost areas to also desire a higher minimum wage. As a result state and local governments are the levels with the greatest level of knowledge of the specific living costs of their areas. Therefore they are often the levels of government which propose increases to the minimum wage in order to respond to higher living costs in their areas and respond to the requests of their constituents.
The strongest supporters of minimum wage increases are low wage workers and those involved with labor movements. This makes sense since these groups benefit the most from increases and are often workers who are clustered in cities where living costs are high and low income jobs are prevalent. These workers are not the only beneficiaries of a higher minimum wage, governments also benefit from wage hikes as it leads to low income workers getting more money from their employers and less money from government programs. This means that the government is able to spend less on these welfare programs which they would obviously be in favor of.
But if the workers and the government want a higher minimum wage, why then is there so much debate every time an increase to the minimum is proposed? Who are the people opposing these increases? These opposition members are of course the people who will bear the cost of the increase, the business owners. Business owners obviously do not want to see an increase in their labor costs as this will have a negative impact on their bottom line. These business owners are also often well connected which allows them to influence local politicians away from supporting an increase to the minimum wage which only prolongs the fights and debates over minimum wage increases at the state or local level.
So how can we decide which side is right? What are their arguments?
Our pro/con debate for this podcasts focuses on whether the legalization of prescription heroin would be a solution to the drug crisis. Here are two perspectives.
Pros of increasing the federal minimum wage
The minimum wage has not kept up with inflation in the United States. Purchasing power (the “bang people get for their buck” or the amount of goods they can purchase with their currency) peaked in 1968 and would be the equivalent to about a $11.16 minimum wage in today’s economy. Purchasing power has since been on a decline and has not been able to keep up with the inflation rate. A boost in the wages would be a potential boost in purchasing power and catching up a bit to inflation.
Raising the minimum wage could help boost the economy. Naturally, putting more money in people’s pockets would in turn put more money back into the economy through more consumer spending. For example, if someone made more they may not have to be as conservative with their spending.
An increase in minimum wage would potentially be able to reduce government welfare spending. Generally, those who are low-income workers will earn more money with this increase, decreasing the eligibility and dependence on benefits provided by the government. In 2014, the Center for American Progress reported that an increase in federal minimum wage would reduce the spending on the Supplemental Nutrition Assistance program by $4.6 billion . The Economic Policy Institute claims that 1.7 million Americans would no longer be dependent on government benefits, resulting in a decrease of $7.6 billion in spending by the government on income support programs.
Small business owners support a higher minimum wage. A national poll of small business owners conducted by the American Sustainable Business Council found that 60 percent of small business owners support increasing the federal minimum wage to $12 by 2020 and indexing it to inflation. More money means more money to spend and this is what small businesses thrive off of.
Cons of Increasing the Federal Minimum Wage
Raising the minimum wage will ultimately force businesses to compensate for the lost revenue, and this burden will not be placed upon wealthy CEOs. Companies will pass the cost of increased wages along to either their consumers or their employees. To pay for increased wages, some companies will raise their prices, while others may lower the quality of the goods or services that they provide. If companies choose to maintain their prices, they will compensate for the increased expense by laying off some of their workers and either increasing the responsibility of the remaining workers, or simply increasing their utilization of technology to complete basic tasks previously handled by minimum wage employees.
While major corporations will simply adjust to the new minimum wage by raising prices or laying off workers, small businesses will not acclimate so easily. Small businesses have less revenue than large corporations, and many cannot afford to pay their employees the increased wages while also paying their other expenses. This is further complicated when considering that small businesses have fewer employees to take on the responsibilities of those laid off, making it difficult for these businesses to function if an increased minimum wage forces them to downsize.
Poor areas of the country would suffer greatly from the increase of the federal minimum wage. Higher concentration of minimum wage workers reside in poorer areas, while the opposite is true for the workers in richer areas. A region is deemed poor or rich by examining the cost of living of that area. For example, in 2015 Mississippi had a cost of living at 83.5% of the country’s average, while Hawaii had a cost of living at 168.6% of the country’s average. Poorer areas would need to pay proportionally more than the richer areas and will struggle to provide the increased dues to the current employees. The increased minimum cannot be compensated with an increase of the price of consumer goods since people in the area would not be able to afford them. Thus, the minimum wage change would cripple poor areas.