Minimum Wage, Maximum Debate
Business as usual?
Business as usual?
It’s been quite the week in politics — from Iowa to impeachment to SOTU — so we wanted to take time in today’s newsletter to dive into a specific policy idea that has been circulated: raising the minimum wage
Minimum wage is a tricky subject (see: Controversy over low-paid field staffers for Bernie Sanders, noted $15 minimum wage proponent), and it’s natural to feel a tension between personal values and a pragmatic view of economics.
Compared to other developed countries, including much of Europe, Australia, Canada, and Japan, the US has a lower minimum wage policy. Several states currently use the federal minimum wage as their limit (map here with current laws). Many politicians (from Biden to Sanders) and activist groups have been pushing for a higher national minimum wage of $15. A law increasing the minimum wage to $15 passed the House last year but the Senate refused to take it up.
At $7.25 (the current federal rate), someone who works 9 to 5, 5 days a week, for a full year would earn $15,080 before taxes and deductions
The current federal poverty line for a single-person household is $12,760. The poverty line is calculated, and has been since the early 1960s, “at three times the value of an ‘economy food plan’ developed by the Agriculture Department,” according to the Washington Post; it’s a heuristic from a time when 1/3rd of family budgets went to food 60 years ago.
At $15 (proposed rate), someone who works the same hours would earn $31,200
Even at the rate, this worker would be below the bottom 99%!!
Yet, raising the minimum wage does raise questions:
Anecdotally, small business owners find a higher minimum wage challenging: “Small businesses can’t start at that dollar amount. To have to start people at $15 an hour and be able to give them raises would be very difficult.”
Not to mention the implications on employer-provided healthcare insurance, tipping, domestic workers, and regional cost of living differences….
A 2017 economic study in Seattle found that increasing the minimum wage to $13 caused a reduction in hours worked, thus lowering the aggregate amount paid to workers by an average of $74 per month.
However, a subsequent 2018 study found that an average gain to workers with above-median experience of $8-$12 per week (in part due to making up lost hours outside of Seattle); less-experienced workers saw no significant change to weekly pay
Nevertheless, the tides are undoubtedly turning. Famed minimum wage critic, McDonald’s, ceased its lobbying efforts against minimum wage hikes in 2019 while the current Administration has stated its support of a smaller minimum wage increase paired with relief for small businesses.
In a world where these companies still have healthy operating margins and are still paying their executives exorbitant salaries, we can’t help but wonder if these corporations should think twice about their role in perpetuating income inequality…
Understand where you stand. The NY Times “Are You Rich?” quiz is a good sense check to understand your income position relative to others in your age and geographic demographic
There’s more to the story than just minimum wage. On the other side of the equation is paying people who work more than 40 hours a week overtime pay. The guidelines for overtime pay were updated in 2019 for the first time since 2004. Under the Trump administration, overtime pay was expanded much less than President Obama’s planned expansion that was blocked before it could take effect.
Remember that US work standards are not normal and engage your employer in fostering a healthy, inclusive workplace! “We found that workplaces are a source of the health crisis, which is being observed all over the world, as health care costs are rising. The irony is, of course, that most of what we’re doing at work that’s making people physically and mentally ill is also not helping companies or economic systems.” — Jeffrey Pfeffer, a professor of organizational behavior at Stanford Graduate School of Business