Your thoughts on the new federal minimum wage?
A few days ago, the minimum wage went up from $6.55 to $7.25 according to the U.S. Department of Labor. The measure affects 29 states while other states already have an equal or superior minimum wage (note that employers are required to pay whichever is the highest: Federal or State). This new federal minimum wage results in an income of $1,160 a month or close to $14,000 a year. Poverty guidelines established for 2009 indicate that for a family of two, $14,750 or less — or for a family of four, $22,050 or less — are indicators of poverty according to HHS (Health and Human Services). It’s even tougher for those in California, where the minimum budget and cost of living for a family of four is $77,069.
The minimum wage measure is supposed to combat poverty but we clearly see through the above numbers that our stalwart politicians in Congress have never and will never have to live on minimum wages. One cannot feed a family of four with this miserable salary so it stands to reason that the only people who might appreciate this latest wage increase are single persons such as students or low-skilled workers (although these days, it seems that more people are willing to work for minimum wage).
Federal Minimum Wage Through History
Let’s remind ourselves of what the federal minimum wage numbers have been throughout history. Here’s a table showing the actual minimum wage between 1939 and 2009 (source: Wikipedia):
| Year | Wage | Year | Wage | |
|---|---|---|---|---|
| 1939 | 30 cents | 1976 | $2.20 | |
| 1945 | 40 cents | 1977 | $2.30 | |
| 1950 | 75 cents | 1978 | $2.65 | |
| 1956 | $1.00 | 1979 | $2.90 | |
| 1965 | $1.25 | 1980 | $3.10 | |
| 1967 | $1.00 | 1981 | $3.35 | |
| 1968 | $1.15 | 1990 | $3.80 | |
| 1969 | $1.30 | 1991 | $4.25 | |
| 1970 | $1.45 | 1996 | $4.75 | |
| 1971 | $1.60 | 1997 | $5.15 | |
| 1974 | $1.90 | 2007 | $5.85 | |
| 1975 | $2.00 | 2008 | $6.55 | |
| 2009 | $7.25 |
And here’s a chart showing the real value of the minimum wage (inflation adjusted) from 1938 and 2009 (source: Economic Policy Institute):
Politics as Usual
The only important caveat in this political maneuver (done obviously to collect sympathy votes) is that the raise in minimum wages may have just the opposite effect of what Congress intended: even worse, recent research has shown that higher minimum wages reduce teenage education levels and decrease workers’ long-term earnings.
Studies also show that the minimum wage does not reduce poverty. Granted, the Heritage Foundation is a very conservative think tank that regularly slams welfare proposals as too costly and ineffective. But they have a somewhat valid argument when they claim that high school students drop out at a higher rate if the pay is more attractive; they prefer paid work to study, believing erroneously of course that they’ll be able to survive with such low wages.
Why Not Implement a Real Minimum Wage?
For the sake of argument, let’s take a neutral position in this matter and base our opinion strictly on facts; as mentioned above, one single individual just might make it with the new wage of $7.25, although the task would be daunting. He or she would need a very cheap room somewhere with abundant public transportation.
But what about families? Of course, a family simply could not survive on such an amount. So why don’t our enlightened politicians offer a “real” (feasible) minimum wage of, let’s say, $25,000 a year? The reason is simple: businesses would not hire heads of households for such a price; it’s too onerous. Instead, they would hire illegal aliens, reduce the number of workers or simply outsource the job.
Main Street vs. Capitol Street
What do you think about retooling the minimum wage policies we already have? Well, it would certainly ignite a big political debate but here are a few ideas: as far as minimum wage workers, wouldn’t it be better to ask the government to differentiate between single workers under the age of 20 and the rest of the population? To help out families with children, how about making it easier for other family members to financially contribute to the household?
Perhaps we could lower the salary of school age workers to make it easier for them to be hired in temporary summer jobs without giving them the illusion of permanency. We could also lower the minimum age to 14, so as to help thousands of poor families who need the additional income. As it stands now, teens under 16 have serious restrictions regarding the hours and places they can work, while teens 16 or older can work as much as they want. For those worrying about their financial situation, here are some suggestions on what low-income earners can do to get off minimum wage.
Are We Eliminating More Jobs?
Many believe that the increase in minimum wage is not the social panacea that many people envision. It can really hurt the job market, especially now that the economy is still reeling from its dismal performance. I believe that our politicians have chosen the wrong measure and the wrong time to increase the minimum wage. Had it happened among general prosperity, few voices would have been heard against the measure. As it stands now, the raise will actually eliminate jobs instead of creating them and provoke a general outcry among the business world; and we can’t really afford that now, can we?
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{ 10 comments… read them below or add one }
The minimum wage issue is a thorny one, especially if one sees on what other people in the world considers a minimum living wage. A minimum living wage is something that has to be agreed on, where a person has the wherewithal to afford a home, food, medical care and the other necessities of life.
Our capitalist system is very cruel to the entry level creatures that are the worker bees, and I feel there has to be a certain amount of socialism embedded into the fabric of our society to take care of all of us.
makes me think that become an entrepreneur is a best choice..
You are right, now is definitely a bad time to do this. In my opinion I’m not sure when a good time is though. Raising minimum wage causes businesses to pay their employees more. Sometimes even the ones that aren’t on minimum wage. Businesses can’t print money like the government so if they want to keep their profits the same they either have to lay off people or raise their prices. They could decide to take a profit loss, but I don’t see most businesses doing that. I know I certainly wouldn’t want to. I just don’t see how raising the minimum wage ever helps since it leads to less jobs or higher costs for all goods because businesses don’t want to take the profit hit.
I have to agree with the original post, that raising the rate has been counterproductive. I’m seeing retail establishments, which typically employ min wage workers, shorten their hours, which means people are working less. We have to remember that when the min wage goes up, so do related payroll costs. Employers are in a real squeeze, and can’t pay more than they can pay no matter what the min rate may be. Either they’ll cut hours or they’ll cut jobs.
I wonder what a temporary elimination of the min wage might do for the economy? Would it cause a surge in hiring? If it sounds unfair, people just won’t work for the amounts offered.
What about employees who are marginally productive? They’re not really bad enough to fire, but they don’t really make an effort. How does it benefit society – or even those workers – to provide them a living wage when they aren’t working particularly hard? If you set the minimum too high, do you reduce the incentive for people to try to excel and move up the chain a bit?
Only about 2-3% of the nation works for the federal minimum wage. Half of those workers are under 25 years of age. Over half of the jobs are part time jobs. So changing minimum wage is much less of a big deal than some people think. The total net increase in wages is somewhere around $1.5-$2B per year. Roughly 0.1% of corporate profits. Or less than Microsoft clears in 2 months.
Minimum wage should be indexed to inflation. Then we’d see small gradual increases that would be easy to swallow rather than a decade of no growth then a large jump.
Great discussion of this issue. The politics of raising the minimum wage never changes though, and neither do the arguments against it. With the current nay-sayer minority, I wouldn’t be surprised if raising the minimum wage turns into an attack tactic against the Dems and against Obama. Sure raising the minimum effects change in the bottom line of many small businesses, but it’s likewise true that a very small percentage of people living in the US make the minimum.
@Goran Web Design: I agree with what you said, that minimum living wage is something that has to be agreed on. Workers must be well-taken care of in order to become more productive.
It is amazing how slowly minimum-wage is at catching up with inflation over the years. I suppose part of this has to do with the inflation that a sharp rise in wages would cause, but it makes living no less difficult for those trying to raise a family on minimum wage.
With wages as low as this, a solid health care reform package needs to be implemented! It’s not health care socialism as the right would have you believe. It’s about taking care of all of America’s needs, not just the social elite.