July of 2012 has witnessed an impressive roll-out of a carefully orchestrated campaign to increase the Federal minimum wage in the United States. Now set at $7.25 an hour, the first June proposal to raise it to $10 an hour was swiftly followed by a flurry of activist studies, projections, and more serious legislative bills. In Congress, a California congressman and an Iowa senator both introduced bills for incremental steps to reach $9.80/hr., permanently indexed to the CPI thereafter. A variety of groups comprised of unions, entitlement lobbies and liberal commentators have launched a nicely-timed wave of overlapping supportive press releases in just one month. Their identities, the proposals and the details of their arguments are well documented in the embedded links above. Each argument is one-sided, of course, which doesn’t seem fair. So, let’s try for a balanced treatment of the issue.
Here is one feeble attempt to offer a general summary of the pro arguments and to suggest a few possible retorts from the con side.
Pro: No one can raise a family on the minimum wage. Con: Don’t try it, because $7.25 is the federal minimum floor rate, not a living wage figure. It is designed for the rawest new beginners entering the workforce with virtually no marketable skills, doing the simplest tasks before advancing to jobs of greater value.
Pro: Big corporations will pay the most if the minimum wage goes up because most of the affected workers are employed by major corporations, and they can afford it. Con: Sock it to the rich is a solid proven tactic for a populist election campaign and basic to a progressive tax system; but the practice can be hazardous if it risks eliminating American investment dollars or reducing our global competitiveness.
Pro: The largest employers of low-wage workers have recovered nicely from the Great Recession. They can afford it. Con: So what? Marxism failed. Couldn’t the unemployed folks return to school to learn a valued skilled trade for which there is a shortage? Why should employers be forced by government to arbitrarily pay more for their least qualified and most minimally productive workers?
Pro: CEOs with obscene pay packages and shareholders with high dividends can afford it. Con: Then why not assign them families to support with their “excess funds” rather than raise minimum wages so as to create upward compression on the pay of every employee immediately above the lowest-paid at each company? The diminishing ripple effect might not disappear until the $40,000 level. Why should all employers be punished for the imbalance of wealth caused by a tiny minority?
Pro: A minwage boost will “jump start” the U.S. economy, stimulate consumption and raise the GNP. Con: Just like the various other failed stimulus programs, eh? Why should THIS latest scheme suddenly work, when minimum wage increases have never created instant prosperity before? Besides, most of those low-wage jobs are in nonessential services (fast food, entertainment, recreation, etc.) that create little lasting economic value.
The topic is greatly complicated by fact that, despite the heated rhetoric, not that many workers are directly affected by minimum wage changes. Far more people work in jobs that are exempt from the Federal minimum wage than actually earn that hourly rate. Many occupations and industries are specifically excluded from coverage, so there may be two times as many people legally earning under the minimum hourly rate than those who earn the current $7.25 an hour. None of those others (like mall workers or servers earning tip income) will benefit by a change to the federal minimum wage.
That makes it improbable that claims based on a prediction of broad economic effect will come true. Of course, that also means that counterarguments of immense economic harm may likewise be severely exaggerated. We shall see.
As one who has been a small employer and who works in the state with the highest minimum wage in the nation, I would suggest that the havoc triggered by a minimum wage change affecting one employee at a small firm is much less easily handled than a boost to 800 workers at a major firm with mature pay systems. There are a lot more small companies than major corporations, and those tiny enterprises lack the skilled HR and compensation functions to adapt smoothly to such changes. There will likely be disparate pain and confusion at the majority of American firms, if these changes go through.
It should create quite a demand for compensation professionals, however.
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.
Image: Federal minimum wage poster courtesy of DOL
Jim you picked a "provocative" subject. And as much as I am straining at the bit to jump right in with my humble opinion --- I think I will pay heed to that tiny little voice deep down inside that I can barely hear telling me to STIFLE.
Posted by: Jacque Vilet | 08/07/2012 at 01:15 AM
Why stifle an opinion? There is a school of thought (enshrined in the most fundamental principles of our society) that all progress proceeds out of conflict, contrast and compromise. Law, particle physics, philosophy... the list of elements that depend on exchanges that involve opposing forces is endless. The adversarial tradition is basic to us and some would argue that it is essential to humanity.
At the very least, please suggest what PROS or CONS I may have overlooked; or point out which ones some people may feel to be far more vital than others in the scale of priority. Remember, this the ideal place for "caffeinated discussion" where adults of good will can participate in free and open debate. Nothing offensive will be permitted, of course; but sincere ideas and serious thoughts should never fall into that category.
It is most meet and fitting that we have this conversation on a day set aside for elections in much of America. What better example could we have? That alone should challenge us to offer contesting concepts in better ways than our politicians do!
Posted by: E. James (Jim) Brennan | 08/07/2012 at 09:35 AM
"There will likely be disparate pain and confusion at the majority of American firms, if these changes go through."
Of your "cons", I found the above statement to fall quite flat. I felt like saying, "Aww, poor guys....they're going to be confused...."
Companies have been through minimum wage increases before, they know what to do. I appreciate your pros/cons. There's plenty more that could be added to the list I'm sure.
I agree that small changes to the minimum wage will not do much, if anything at all, to un-stick us from this recession. It could, however, in combination with many other areas of fiscal policy changes, begin to improve some peoples' day-today financial conditions.
More debate will likely follow....for better or worse.
Posted by: Molly | 08/07/2012 at 11:19 AM
Some small companies have never had to react to a minimum wage increase. If it is a new firm or one whose entry rate has historically exceeded the required rates, they may make avoidable blunders that can cost far more than the price of the additional cents per hour at the lowest level.
While those negative consequences may seem relatively small, they can be big to the victims. Maybe it's a parallel situation to how a few cents an hour can mean a lot to some people. It all depends.
Feel free to suggest more pluses and minuses, because the article space did not permit all I could imagine.
Posted by: E. James (Jim) Brennan | 08/07/2012 at 11:36 AM