The recent announcement by WalMart and McDonalds that they intend to raise the wages of their lowest paid workers is good news. It is a sign that the current push by labor activists to raise the U.S. federally-mandated minimum wage to $15 an hour is having its desired effect.
There is, however, a wider debate over the impact of raising the minimum wage, and those opposed to the action tend to make arguments that are laced with assumptions. Their central claim is that increasing the minimum wage will hurt business profit. But, aside from the fact that no causal link has ever been established between the two factors, there is no reason for anyone to accept business profit as an absolute economic value.
The trouble with the conservatives’ take on this issue is that they assume that maximizing business profit is good both for business owners and their employees. This is a belief that has never been proven, and you are likely to be accused of economic illiteracy if you believe that owners should make a little bit less so that employees -the lowest paid especially- can make a little bit more. The latter conviction cannot be proven either of course. It is a claim based on political and personal values. And that’s what the debate ultimately comes down to: what you value most as a citizen in this society.
In 1933, in the midst of the Great Depression, President Franklin Roosevelt said:
“No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”
The minimum wage was created to establish a basic standard of fairness for pay, and that is where the focus of the debate ought to be. The wisdom of raising the minimum wage should be assessed according to its overall impact on working people, not just the effects it will have on business owners.
That said raising the minimum wage need not advantage the former to the detriment of the latter. Here are 2 reasons why raising the minimum wage is good for business and 2 reasons why it’s good for workers:
1. It will strengthen the consumer class
The growth and prosperity of the American economy depends on high consumer spending. Three out of five small business owners back a minimum wage hike, gradually implemented, because they understand that the fortunes of their companies are tied in with the overall health of the U.S. economy. The more money individuals have to spend the more likely they will spend it on goods and services provided by their businesses.
2. It will contribute to increasing worker productivity
Nobel-prize winning economist Paul Krugman said:
“Every time a state raises its minimum wage while neighboring states don’t, it, in effect, performs a controlled experiment. And the overwhelming conclusion from all that evidence is that the effect you might expect to see — higher minimum wages leading to fewer jobs — is weak to nonexistent. Raising the minimum wage makes jobs better; it doesn’t seem to make them scarcer.”
There is no evidence that paying people more results in them working harder. However, it does encourage them to stay with the company longer. High retention saves companies the cost in time and money of recruiting, selecting, and training new employees. It is also the case that a decent wage makes for more satisfied employees—people more willing to show initiative, energy, and innovation in their work.
3. It will help poor people get out of debt
Although it may not seem like much, raising the minimum, even in two dollar increments, will significantly improve the difficult lives of the working poor. Contrary to popular myth, most poor people actually work. The trouble is they tend to be trapped in debt. This is not the result of greed or extravagance. Many low wage workers cannot live on what they’re paid and must resort to payday lenders and the like just to get by. Increasing the minimum wage will enable such individuals to break the cycle of debt and poverty and help them build a more sustainable middle class life.
4. It is good for American democracy
Raising the minimum wage will relieve many working Americans of the burden of holding down multiple jobs to make ends meet. Democracy needs an engaged and well-informed citizenry if it is to work properly. Having to work three or four jobs just to keep body and soul together leaves little time and energy to track the conduct and review the record of elected representatives. Civic action should not be the purview exclusively of the wealthy. Wage earners should also have space in their lives to follow politics, vote, and get involved in causes that affect them and their families.
Raising the federally-mandated minimum wage is sound economics and good social policy. There are trade-offs to be made of course, but there is no evidence that doing so will weaken job growth or hurt business owners.
What is your opinion? I look forward to your comments.