Economy

6 Lies We Should Stop Spreading About Raising the Minimum Wage

The minimum wage is so low that it can’t even keep a family of two above the poverty line. Raising the minimum wage is incredibly popular: voters even passed an increase to the minimum wage by an overwhelming margin in deeply conservative Arkansas. But any time an increase to the minimum wage is contemplated anywhere, business interests and conservative media outlets always come up with the same reasons why the minimum wage should stay where it is.

Let’s take a look at some of those excuses and do away with them once and for all.

Jon Stewart on the minimum wage

Myth 1: “Well, if you’re going to increase the minimum wage to (whatever amount is at issue), then why not increase it to $50 an hour? Why not a $1,000 an hour?”

Well, intuitively, because that sounds absurd. But sure, let’s actually look at it. One of the most common arguments for increasing the minimum wage is that it will stimulate the economy. This works in two ways: for one, when workers are paid more, they spend more, which drives up demand and increases economic activity. But in addition, paying higher wages reduces poverty and the strain on the social safety net. Some people, though, use this basic economic principle to set up a ludicrous straw man argument: If increasing the minimum wage is an economic boon, why not increase it to something ridiculous?

Because basic economics is against that, too. Raising the minimum wage too high will certainly kill jobs; a coffee shop, for instance, cannot afford to pay its baristas $100 an hour. The question, then, is: What is an ideal minimum wage that will provide a dignified living without killing jobs? It obviously varies by location—but Los Angeles Mayor Eric Garcetti commissioned a study on the issue, and found that a citywide minimum wage of $13.25 an hour would provide a significant economic stimulus with negligible job loss.  And given how low the federal minimum wage is in terms of its purchasing power, it would stand to reason that there’s a lot of room to increase it before any adverse effects to the economy set in.

So, bottom line: if you increase the minimum wage to $15 an hour, you won’t kill the economy. But if you increase it to $100 an hour, you will. That’s why not.

 

 

Myth 2: “Who cares about the minimum wage? It’s just for teenagers.”

This one is a favorite argument of hardcore conservative ideologues: the minimum wage is just for teenagers and people entering the workforce and isn’t designed to support a family. Unfortunately, that’s just not the case. According to the Department of Labor, 88 percent of people earning minimum wage are age 20 or over. And despite the racist argument by Rep. Tom McClintock (R-CA) that the minimum wage is designed for unskilled minorities, the truth is far different. In 2012, nearly 78 percent of minimum wage workers were white.

Myth 3: “The minimum wage is for part-time workers, and people aren’t relying on it to actually support a household.”

This excuse for keeping a low minimum wage is similar to the “they’re just teenagers” argument. It’s based on the idea that minimum wage work is just for supplemental income and part-time work. According to the Department of Labor, over half of people paid at minimum wage work a full-time schedule, and minimum wage workers contribute 46 percent of their household’s income. In other words, minimum-wage work isn’t just supplemental; many households are relying either fully or substantially on full-time, minimum-wage work to pay the bills. For millions of agricultural workers, fast food workers, and retail workers, minimum-wage labor isn’t just a supplement—it’s what they depend on to survive.

Myth 4: “The minimum wage is the highest it has ever been, so we don’t need to increase it.”

In terms of pure isolated numbers, this is technically correct. The current minimum wage of $7.25, last raised in 2009, is the highest numerical value the minimum wage has ever achieved. The problem is this pesky thing called inflation. In a healthy economy, both wages and prices will continue to rise; the downside, though, is that each individual unit of currency becomes gradually worth less. For instance: the Federal Reserve has a set a target inflation rate of 2.5 percent per year. At that rate, a good or service that costs $100 this year would cost $102.50 next year.

That may seem like a negligible amount, but over the long run it can add up fast. Since 2009—the last time the minimum wage was increased—the dollar has lost a full 8 percent of its purchasing power due to inflation. And that has been during a period when inflation rates have been abnormally low because of the Great Recession. According to the inflation calculator from the Bureau of Labor Statistics, it would take a minimum wage of $7.93 in 2015 dollars just to match the purchasing power of what $7.25 could provide in 2009. So it’s not just that the minimum wage is staying the same: every day, it actually becomes worth a little bit less. That may be just fine with people who wish there were no minimum wage at all, but it’s not fine for the millions of people who rely on minimum wage work to pay the rent.

Some states are taking steps to solve this by indexing their minimum wage to inflation, but the federal minimum has no such provision. It will just stay where it is at a set, numerical value until Congress decides to change it.

Myth 5: “Raising the minimum wage will kill jobs.”

We touched on this one a little bit already, but let’s just go straight to the Department of Labor to address this one:

A review of 64 studies on minimum wage increases found no discernable effect on employment. Additionally, more than 600 economists, seven of them Nobel Prize winners in economics, have signed onto a letter in support of raising the minimum wage to $10.10 by 2016.

Now, keep in mind: as with the Los Angeles-based study mentioned earlier, this doesn’t mean that some individual jobs won’t be lost if the minimum wage increases. But it does mean that the total number of jobs available will stay the same, and those jobs will pay more by virtue of the minimum wage being higher.

 
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Myth 6: “Raising the minimum wage is bad for business.”

Raising the minimum wage will be good for workers and good for the economy overall—but what about its impact on the business community? It is commonly argued that raising the minimum wage will hurt businesses by making them less profitable and decreasing their value to shareholders. But that’s not necessarily the case, as the classic comparison of Costco and Walmart proves.

Costco and Walmart are two of the largest retailers in the United States, but they have far different philosophies regarding employee compensation. Costco’s starting wage for employees is $11.50 an hour, and their average wage is nearly $21 an hour. Walmart, meanwhile, announced earlier this year that it would raise its starting wage to $9 an hour—and its average wage is $12 an hour, far lower than Costco’s.

Given the large discrepancy in employee compensation, one might expect Costco to have much lower profitability—but this isn’t the case. If you invested the same amount in both Costco and Walmart in 2005, your investment in Costco would be worth 4.5 times more right now.

A driving factor behind this is customer satisfaction: better-paid employees tend to be more satisfied in their jobs, which means they tend to take better care of customers—and that makes customers want to come back. Happier employees are also less likely to quit, which reduces turnover and training costs. As prominent investing website Motley Fool puts it:

Salaries and benefits are not only expenses on an income statement. Human talent is a valuable resource in the increasingly competitive business world. Skilled employees working under the right incentives can generate enormous benefits for investors via increased productivity and customer satisfaction, just for starters. Innovative companies such as Costco prove that happy employees can make shareholders smile, too.

Costco’s CEO, by the way, supports President Obama’s effort to raise the minimum wage to $10.10 an hour. A minimum wage increase may interfere with a low-wage, low-satisfaction business model—but that doesn’t mean it interferes with the ability of businesses to be profitable.

So what’s the upshot?

There is no good reason not to increase the federal minimum wage. It will help the economy, help workers, and even help businesses. So let’s get it done already.