Wednesday, July 23, 2008

Do We Need a Minimum Wage?

With the US minimum wage scheduled to rise this week, the debate over its merits will start up again. In fact, there seems to be no better way of finding out where someone is on the political spectrum than asking them their views on the minimum wage.

Generally someone of a liberal mindset will feel that a minimum wage law is necessary to keep the working poor from being exploited by “greedy businessmen” while those on the conservative side will feel that laws of supply and demand should decide wage levels and that the government shouldn’t interfere.

Within each side are more extreme viewpoints. For example some liberals believe that the minimum wage should be raised high enough to allow the working poor to escape poverty no matter how high the wage has to be raised to accomplish that.

Then there are some conservatives who feel that there should be no floor whatsoever on what people are paid — even if it’s a quarter an hour! For those who think I am exaggerating on this point, check out Stephen Colbert’s July 15 interview of Jason Riley from the conservative editorial board of the Wall Street Journal in this
video link.

For those unfamiliar with The Colbert Report on Comedy Central, it is a comedic parody of news shows but with interviews featuring real people in the news. I would like to share a transcript here of the video starting at the 4:48 mark:

Colbert: How do you feel about minimum wage, sir?

Riley: I’m a free market advocate. I don’t believe in the minimum wage.

Colbert: So we get all these people who come from a country making 25 cents an hour; they come here, we can pay them 25 cents an hour? That’s a good bet. Wait a second! You’ve just sold me. You’ve just sold me sir! This was just a trick Mr. Wall Street Journal!
This will be cheap labor! They’ll be like indentured servants!
(Audience laughter)

What is obvious from the video (but not the transcript) is that Colbert is using comedic exaggeration about people being paid like indentured servants to get some laughs — which he did. But Riley either didn’t get the joke or ignored it and just matter-of-factly responded:

Riley: As a consumer, you want businesses looking for cheap labor because that results in lower prices.

Colbert: No matter how cheap it is?

Riley: Well, cheap labor results in more business profits, which results in more capital investments, which results in more business expansion and more jobs.

So in this far right view, it’s all about business profits no matter how much the workers may be getting screwed in the process. And while our subject here is the minimum wage, it is impossible not to include some consideration of our immigration problems when addressing this issue. According to this thinking, if companies can get away with paying what most of us would consider to be slave wages to immigrants, especially illegal ones who are not in the position to complain, why not? So when the New York Times on July 21 came out with an editorial Pushing Back on Immigration which included the following excerpt, I couldn’t help but be cynical.

In Arizona, home to some of the most rabidly anti-immigrant politicians and advocates, a business group had huge success gathering signatures for a ballot initiative that would soften some of the most stringent employer punishments enacted last year.
An example of a much more sympathetic view of the minimum wage comes from this New York Times editorial
After 75 Years, The Working Poor Still Struggle for a Living Wage which also gives an interesting history of how the US minimum wage laws came about.

But what is the minimum wage law supposed to be accomplishing? Basically it is two things. One is to try and prevent businesses from exploiting some workers by paying them an ‘unfairly’ low wage. In theory at least, the law of supply and demand will set what is a ‘fair’ wage that both employer and employee agree to. Indeed, in some locations where there is ample competition for labor, some companies offer more than the government set minimum to be able to attract workers. But in many other locations, especially rural areas, there are fewer employers to choose from. For example, in some rural towns, a single company like Wal-Mart may have almost all of the employment opportunities. Without a minimum wage law, a company in that position would have workers in that town at its mercy in the way of offered wages. And one must also consider that with $4 per gallon gasoline, the practical distance one can drive to what may be a better paying job becomes quite limited.

The other thing most proponents want from a minimum wage law is to help fight poverty for the working poor. Many of us who are middle-class and above think of minimum wage jobs as ways for teens to get spending money or perhaps help pay for college. But it is often overlooked that there are people trying to raise families on jobs like this. If nothing else, we need to at least see that these people will not continue to lose spending power because of inflation. For example Social Security payments are automatically adjusted for cost-of-living increases, but minimum wage rates are not. So unless Congress decides on raises at somewhat regular intervals (which they haven’t) the working poor and others are falling further behind each year due to inflation.

Let me offer a personal example. Back in the early 70s when I attended the University of Pittsburgh, my $2.25 per hour minimum wage salary as a restaurant worker was enough for me to pay my $1,000 per year tuition at the time and even have a little money left over to save. But by comparison, today’s minimum wage is only about 3 times my salary back in the 70s, but that same college tuition has increased about tenfold to over $10,000 annually!

But even most liberals realize that there is only so much that can be done to fight poverty through the minimum wage which is why another method is also used to try and lend a helping hand to those struggling with poverty in the form of the
Earned Income Tax Credit which through tax policy attempts to target those who need help the most.

So when we think about our minimum wage laws, we need to think about those living
life at America's bottom wage. Most fair minded people would agree that there should be a reasonable balance between the interests of the workers and those who employ them when making government policy. But with a political climate in the US that has in recent decades been decidedly pro-business, the working poor have been getting the worst of it as evidenced by the steadily declining minimum wage when adjusted for inflation. If we are to be a nation of compassionate people we need to give a helping hand where needed to people who are working to stay out of poverty. And we need effective minimum wage laws as an important part of that effort!

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