Tag Archives: minimum wage

If We Really Followed the Money…..

I recently came across a citation to a fascinating report from the White House Council of Economic Advisors. (Yes, I know I’m a nerd and my reading habits are embarrassingly dorkish…). But it was interesting!

When asked to study the cost/benefit of various crime reduction policies,  the Council responded with data like this:

The authors consider a few ways of reducing crime. They forecast that hiking the federal minimum hourly wage from $7.25 to $12 would reduce crime by 3 percent to 5 percent, as fewer people would be forced to turn to illegal activity to make ends meet. By contrast, spending an additional $10 billion on incarceration — a massive increase — would reduce crime by only 1 percent to 4 percent, according to the report…

They also calculated the true social costs of crime. It totaled almost $308 billion in 2014. So a simple move like raising the minimum wage to $12 doesn’t only reduce crime by 3%-5%, it would save $8 to $17 billion a year.

The problem, of course, is that in the United States, policies are not evaluated and/or implemented based upon any sort of cost/benefit analysis. A continuing influence of this country’s early Calvinism is our predictable analysis of even the most prosaic policies as “moral” issues, requiring determination of “deservedness.” We don’t ask, what would work best? Instead, we ask “How do we avoid rewarding people for behaviors (real or imagined) of which we disapprove?”

It comes back to a conviction–evidently baked into American DNA–that if people are poor, they must be morally defective. Lazy. Unmotivated. Lacking “middle-class values.”

And all of the data that demonstrates otherwise is simply disregarded as the product of wooly-headed liberals.

If we made policy based upon evidence, we would add the projected reduction in crime to the myriad other benefits of raising the minimum wage.

  • Increased buying power and consumer demand (as a result of more people having more disposable income) would drive improved economic performance.
  • According to research, easing the incredible stress experienced by so many low-wage families would reduce familial dysfunctions and even domestic violence.
  • Ameliorating the fiscal pressures that cause poor families to move more often would reduce the disruptive effect on the education of children who frequently change schools.
  • And guess what? We would dramatically reduce the current levels of government outlays for social programs. 

Someone trying to support a family on today’s minimum wage does not even reach the federal government’s poverty line for a family of three. They would make about $14,500 per year. The federal poverty line for a family of three is $18,123. If the minimum wage were increased to a level at which families could sustain themselves, fewer people would end up needing government assistance for housing, food, or health care. This would be a significant benefit to taxpayers and to states’ budgets.

So why is it so hard to raise the minimum wage?

One intriguing theory, from the Economic Policy Institute, is that raising the minimum wage may be seen as a women’s issue.

While increasing the minimum wage would have a sizable impact on both men and women, it would disproportionately affect women. That women comprise 54.5 percent of workers who would be affected by a potential minimum-wage increase makes it a women’s issue… The share of those affected who are women varies somewhat by state, from a low of 49.3 percent in California to a high of 64.4 percent in Mississippi (according to the authors’ analysis of Current Population Survey Outgoing Rotation Group microdata). California and Nevada, also at 49.3 percent, are the only states where women do not constitute the majority of those who would benefit.

I hate to be a cynic, but maybe the disproportionate benefit to women is why we have so much trouble getting it done.

Misogyny? Or just our usual penchant for stubborn ideology over evidence?

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Dire Prediction, Meet Real-World Result…

The growing pressure to increase the minimum wage is frequently met with a prediction that wage increases will hurt both businesses and consumers–if that hamburger costs five cents more, fewer people will buy it, and that will lead to layoffs that hurt the very people higher wages are meant to help. (It’s interesting–and telling– that the prospect of better pay for employees always triggers an expectation of increased prices for consumers rather than a modest decrease in returns to shareholders. But I digress.)

So how’s that prediction holding up in the real world?

After raising the wages to over 90,000 employees and providing more incentives and benefits, Steve Easterbrook, McDonald’s CEO is pleased to announce the company’s turnaround plan is actually working. Profits are up, employee turnover is lower, and customer satisfaction scores are higher.

According to Fortune Magazine,

“U.S. comparable sales rose 5.4 percent, their third straight increase after what had been two years of declines.” This is partly due to their new menu deals and all-day breakfast, but it’s also undeniable customer satisfaction due to happier employees is also a factor in that growth. Which just killed a popular right wing talking point that increasing wages and providing more benefits hurts business, at least for McDonald’s it hasn’t.

So let’s see: McDonald’s CEO says the company measured an overall 6 percent rise in customer satisfaction, and he attributed that improvement to better compensation and incentive packages for employees. (There is no mention in these reports of price increases, nor data suggesting that people have stopped buying Big Macs.)

Not-so-incidentally, it has been estimated that raising wages for McDonald’s employees (and employees of the company’s franchisees, who have not thus far been included in this experiment)  would significantly reduce the burden on American taxpayers. Currently, we are paying 1.2 billion dollars every year to cover public assistance needed just for McDonald’s employees who are not paid a living wage.

In other words, American taxpayers are subsidizing the profits of McDonalds and similar low-wage employers; we are essentially paying that part of employee compensation that represents the difference between what McDonald’s (and Walmart and others) pay their workers and what those employees require in order to live.

McDonalds’ real-world experience suggests that these companies can afford to pay their employees an adequate wage without taxpayer help–and still keep their shareholders fat and happy.

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Why Indiana’s Economy Lags

Indiana’s Institute for Working Families conducts research on Indiana’s economy–more specifically, the ways in which the state’s economy is or is not working for low-income Hoosiers who work.

The news, you will not be shocked to discover, is not good.

Recently, the Institute posted a list of 16 reasons why Indiana’s minimum wage should be raised. I encourage you to click through and read them all, but I want to highlight some of the most compelling.

  • There is not one county in Indiana where where working full time at the minimum wage of $7.25 per hour is sufficient to support even a single adult.
  • Waiters and waitresses in Indiana are paid $2.13 per hour by their employers (29% of the minimum wage). The last time they saw a raise was a quarter-century ago (1991), even as the industry has seen strong growth and profitability.
  • In Indiana, the median number of work hours at the minimum wage for a single adult to become self-sufficient is 48 hours per week. The number of hours increases significantly to 108 hours for a single adult with one preschooler and one school-age child. For a family with two adults, a preschooler, and a school-age child, each adult would need to work 64 hours for the family to be self-sufficient.
  • Standard and Poor’s cites rising income inequality as “contributing to weaker tax revenue growth”, making it more difficult for state and local governments to invest in education and infrastructure.
  • Children whose parents work for the minimum wage live below the federal poverty line. Research has found that children being raised in poverty have lower academic achievement, poorer nutrition, fewer job prospects as adults, and worse physical health than their more affluent peers.

The usual objection to raising the minimum wage makes superficial sense: if businesses have to raise what they pay, they will hire fewer workers. Logical as that seems, the evidence from decades of research says otherwise. As the Institute notes,

Two recent meta-analyses of research on minimum wage increases during the 1990s found that “the minimum wage has little or no discernable effect on the employment prospects of low-wage workers.”

There is a reason for this seemingly counter-intuitive result: when the minimum wage goes up, the buying power of low-wage workers also goes up. Unlike wealthier Americans, low-wage workers spend those extra dollars, and that increased spending boosts the economy. Increased buying power translates to increased sales of goods and services; employers who see improved bottom lines hire more workers.

A raise in the minimum wage to 10.10 per hour would affect 637,000 Hoosiers (23.4% of the workforce). That number includes 436,000 who are currently making less than $10.10 and another 201,000 whose wages would be pushed up due to pay scale adjustments. That’s a lot of additional buying power.

And as an added bonus, paying a living wage to hard-working Americans might ameliorate some of the rage and resentment currently fueling our toxic politics.

Just a thought.

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Another Reason to Raise the Minimum Wage

This research is really troubling.

A 2015 study from Harvard and MIT performed brain imaging on a group of 12- and 13-year-olds, and found those from lower-income families had thinner brain cortex around key intellectual areas. Further, a 2015 study published in Nature Neuroscience, “Family Income, Parental Education and Brain Structure in Children and Adolescents,” analyzed brain surface area — a measure different than cortical thickness — of 1,099 persons from ages 3 to 20 and correlated that with socioeconomic status, representing the largest study of its kind to date. More than two dozen researchers, led by Kimberly G. Noble of Columbia University, performed brain imaging and looked at relationships with household income levels, as well as education levels of the subjects’ parents.

The study found that family income was associated with greater brain surface area, and that the relationship was especially substantial for lower-income children:
“For every dollar in increased income, the increase in children’s brain surface area was proportionally greater at the lower end of the family-income spec­trum.”
The researchers could only speculate about the precise reasons for the link between income status and brain structure; they suggested it might stem from “family stress, cognitive stimulation, environmental toxins or nutrition, or from corresponding differences in the prenatal environment.”

The researchers concluded that “policies targeting families at the low end of the income distribution may be most likely to lead to observable differences in children’s brain and cognitive development.” The researchers were careful to note that these differences in the brains of poor children were not “immutable,” and that there were variations within all income categories.

 Still, the correlation is profoundly consequential, not just for the children themselves, but for an American future that will require the participation and talent of all of our citizens.

There are all kinds of arguments for a living wage–fundamental fairness, the amelioration of social unrest, the fact that economic growth requires growing the number of consumers with disposable income, the fact that taxpayers end up subsidizing the bottom lines of major companies paying poverty wages. But this research provides another compelling reason to increase the incomes of poor working families.

As a country, we give a lot of lip service to children’s wellbeing. We need to put our money where our mouths are.
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I Hate It When That Happens!

Everyone (okay, every economic conservative) knows that raising the minimum wage kills jobs. If employers have to pay more per hour, they will hire fewer people. Obvious.

Except real life doesn’t seem to work that way. Washington Monthly recently reported on the experience of states that ignored the conventional wisdom and raised their minimum wages.

Such hikes were not without opposition. Notably, fast food companies sounded the alarm over the possible consequences of minimum wage hikes—namely, that consumers would pay higher prices and companies would be forced to cut jobs….

Six months after California’s minimum wage rose to $9, the state’s job growth continues to outpace nearly every other state in the country. In November, California added more than 90,000 jobs, its highest single-month total in almost two decades.

The Golden State is not alone. Of the 13 states that saw minimum wage hikes go into effect on January 1, all but New Jersey saw positive job growth in 2014. And as a group, those 13 states averaged significantly higher job growth than states that did not raise the minimum wage.

It turns out that decisions to hire more workers are determined more by things like consumer demand than wage levels.

In fact, demand is far and away the most important factor in job creation. So when wages rise, and poorer people have more money to spend, they spend it. Demand increases. The economy improves. Everyone benefits–including the rich. (Except, evidently, in New Jersey…I wonder what/who Chris Christie will blame…)

In 2015, 21 additional states are set to raise their minimum wage. It will be interesting to see what happens–and, if there is a repeat of the experience of 2014– how the ideologues will spin the results.

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