Up or Down With the Fed?

The minimum wage debate is one of the most central, complex, and controversial economic debates in the United States. Part of the problem is that there is a lack of understanding of what the minimum wage is, where it comes from, and what it does. Another part of the problem is that the two sides of the debate tend to talk past each other. I want to try and lay out what this is all about.

The minimum wage comes from the same vein as many worker protections, such as safety standards, child labor laws, and even overtime pay and the establishment of a 40-hour work week. Put simply the minimum wage is exactly as it sounds – the legal minimum a person can be paid for being the employee of a company.

There is a state minimum wage, and a federal minimum wage. The federal minimum wage is like the sub-floor; every minimum wage must be at or above the federal minimum wage. Then there is the state minimum wage. This is set by the individual states and in general applies to certain employment situations such as businesses below a particular employment or financial threshold.

There are a lot more details about the minimum wage laws than most people realize, and I won’t cover them all, but there are certain jobs that are exempt from one or both of the minimum wage levels, varying definitions of a full-time employee, and alternate minimum wage levels. Currently the federal minimum wage is $7.25/hour up to 40 hours a week, about $10.88 (time and a half) every hour over 40 in a week.

The minimum wage emerged from the depression years as part of a number of reforms to labor and trade practices under the Roosevelt administration. The basic idea of the law is to ensure that a full day’s work is reciprocated with a just living wage.

On one side there is the argument that this minimum wage is a safety net for workers. The ideal here is that a person working a full-time job at minimum wage would be able to sustain themselves and possibly a spouse and child (food, water, clothing, and reasonable transportation) on that sole job. Through this there would be a stronger employment market, with enough available jobs to satisfy potential workers and enough disposable income among workers that they can drive economic growth, continuing a cycle of consumption and growth.

The counter argument is that the minimum wage is actually a negative influence on economic gains both at the micro and macro level. At the micro level, opponents against the minimum wage argue that the cost on the employers from having to raise outlays for employees (i.e., paying more for employees) means doing with less employees, causing job losses. This plays out at the macro level by diminishing the total workforce, meaning fewer people spending money.

There are then of course the array of social and moral questions such as whether government should be so involved as to tell employers how much to pay workers in a free market, the idea that workers wanting better pay should negotiate for it, and more.

So, do we need the minimum wage? Who’s right? Well, both sides are.

The minimum wage is a floor. No employee has to pay their employees only minimum wage. It only says that you can’t pay them less than that.  And there are a lot of places that pay employees far above the minimum wage.

But we cannot always just assume that the better angels of people will play out, particularly when it comes to greed. There are even those who run businesses now – large corporations – who argue that they should be able to pay employees less.

The fact is that the current minimum wage has not even kept pace with inflation. In fact the current federal minimum wage equates to pre-tax income of $15,000 a year. That means that if you are living by yourself with no wife and no kids, you are a mere $4000 above the poverty line. If for any reason you’re a single parent or someone whose spouse is unable to work, you’re now at least $500 below the poverty line. If you think that’s nothing, try budgeting on $290 a week, or around $1200 a month, paying for rent, electricity, food, and either gas or public transportation to and from work. I’ll tell you, a lot of days you’re skipping lunch and dinner, and you’re never eating breakfast. Even then you might not make it on your budget.

It is a reasonable goal that any job worked full-time should provide a person at least enough money to support themselves in all reasonable extent. But it is also true that if enacted recklessly or indiscriminately, the minimum wage can do more harm than good. Too high, or enacted too rapidly, and some companies who operate at the lower wage levels will start laying off people, with the broader market not necessarily having the means to absorb those people into new jobs. Overall this can negatively impact the broader market and we enter a period of economic contraction.

It is also true that even having a minimum wage of any sort puts the U.S at a competitive disadvantage in the global market to place that either don’t have a minimum wage or have a very small one. That means that companies will go there to employ workers, thus instead of a person having a low paying job, they have no job at all.

Nevertheless I believe that we are a better society than to placate an economic theory that forgoes reality or any sense of moral obligation. I do believe in a free market. That demands that corporations be as free to make their choices as possible. But I also know from history and from the present that given completely free rein to do as they please there are plenty of corporations who will care more about lining executive’s pockets than of satisfying worker’s needs.

A false equivalency is often raised – that a worker should be content with any job they can get if they’re looking around for a job in the minimum wage levels as the alternative could be not having a job at all. I call this a false equivalency because this is the same flawed rationale used against many injustices throughout history. Things may be bad now, but they could’ve been worse is the oldest argument in history.

Our goal as a society should not be to just meet whatever basic abject goal we can reach, but to strive to raise our standards. No, no one should set their ultimate goal as being employed in a minimum wage job. But that doesn’t mean that working minimum wage should leave someone a hairs breadth from being financially destitute.

Many tend to think of the issue in relation to a perception of some sort of failing of a person that has them working for such low wages. But I ask in turn that we think of the jobs that constitute minimum wage. All the times you go out to that fast food restaurant, that movie theater, that favorite store, the gas station – the people who serve and prepare your food for you, who accept your tickets and show you to your seats, who rings up your purchases, the people who maintain all those facilities, are likely to be paid at or only slightly above the minimum wage. If not for them, how many of us would be willing to do for ourselves what each of those people do. Every worker does a job that someone does not or cannot otherwise do for themselves. They should at least get paid enough to be able to live a little better than just barely scrapping by.

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