JOBS - Not Steve, The $7.25 Kind

Nearly 48 million (15%) of American citizens are struggling to survive below the poverty line.  In 1938, the Fair Labor Standards Act was passed to stimulate the economy and lift Americans out of poverty.  Had the act taken inflation into consideration, minimum wage would now sit near $10.76 per hour.

There are many, but one reason the change has not occurred is a fear that those receiving the increase are teenagers or secondary providers.  Current 2013 statistics show that an estimated 84% of beneficiaries are over 20 years old - far from perfect, but not bad.

Worse yet, is the fear of an overall job loss.  Nobel Prize winning economist Paul Krugman stated that these negative effects would be minimal, referring to an increase in minimum wage.  If it is true that poorer individuals spend more of their income than do the wealthy out of necessity, an increase in wage should lead to increased consumer spending and growth.

With no added costs to tax payers, maybe it is time to help millions of full-time American workers out of poverty level incomes.


Dr. Tufte said...

Bomber: 88/100 (taxpayer not tax payer, the minimum wage, not minimum wage).

Oh boy, Bomber. Citing numbers casually is probably not something you want to do with a macro guy.

The poverty line is defined in relative rather than absolute terms. Yes, 15% are below the poverty line ... because they define the bottom 15% as poor, no matter how much they have. Many times the cities that have the highest poverty rates are the college towns: for example, Bloomington, Indiana is one of the poorest cities in the country by this standard (I'm sure Cedar City would show badly on this count too).

I have seen figures like the $10.76 one before. I do not understand where people get those numbers from (but I'm not judging you negatively for repeating it). If you adjusted the minimum wage for inflation in the consumer price index (which actually favors workers), it should be up to ... wait for it ... $3.98. Don't believe me? I'll forward the spreadsheet and data sources upon request.

Krugman (and others) have adopted the view that the minimum wage is not harmful. Most economists are incredulous of this claim. Let's take it at face value. How must managers be reacting if we can raise the minimum wage without employing fewer people. It must be that they can raise productivity amongst the workers with the higher wage enough to offset the increase. How could they do this? Well ... yelling and screaming ... firing people who don't keep up ... being less tolerant of other human resource problems, and so on. This does not paint a pretty picture.

10-S Pro said...

My main concern with raising the minimum wage is that many small business owners are also struggling financially, so an increase could hurt the business owners as well as the organization. I may be speculating, but this could cause owners and managers to cut back and eventually employ less people, which could hurt the economy even more.

10-S Pro said...
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Dave Tufte said...

10-S Pro: 50/50

This is more or less the standard textbook argument against raising the minimum wage.

I would add though, that economics doesn't make much distinction between small and large businesses. The focus on "small business" in America is a fetish that doesn't have a lot of objective basis.