To Change the Minimum Wage or Not to Change the Minimum Wage, THAT is the Question
It’s no secret that income disparity is the widest it’s been since the 1970s and that real wages have fallen. What’s fascinating is that corporate profits are the biggest in history as well. Clearly, the spoils have not gone to the line workers, receptionists and mail staff, many of whom do not organize into unions and operate under collective bargaining.
To address this issue, many would argue that the minimum wage should be increased under the “it’s simply not fair” statute. But that’s not quite the capitalist (albeit modified capitalist) society we live in (for better or for worse).
Another argument, and one that I’d make, is that the minimum wage should be increased for macro-economic reasons.
The vast majority of Americans are in the lower and middle classes. This group will drive economic growth simply because it spends the most. How many people do you know who can’t wait to get their tax refund so they can use that money to make needed home repairs, buy new clothes, pay off some debt or go out and eat? Now imagine this happening on almost each and every pay day because of a few more dollars in the bank.
With more people buying products and services, businesses will need to adjust and hire more people, build new plants, buy more equipment, etc., to meet this demand. If I’m a local restaurant, say Ben’s Chili Bowl, and I usually serve about 1,000 people each week, I should start to see that number increase as more people can afford to eat out more often. As I start to feed more people, I will need to purchase more ingredients (so my suppliers will have to sell more ingredients to me), hire more staff to serve patrons and, maybe even, add another location (which could mean more work for architects, more rent for landlords, more construction jobs if building from the ground up, etc.). The point is that at least some of this growth funnels back into the economy.
Now, Ben’s probably won’t see this increase until after its patrons start to see more money in their wallets. So, can businesses really afford to wait? For those corporations with record profits, sure. Stockholders (including regular folks whose retirement plans have stock in them) could take a hit (higher payroll expenses would not be immediately offset by higher revenues). But, this seems temporary. Revenues would eventually pick up as consumers purchase more products and services at, ideally, a much faster pace than expenses.
And for those businesses that truly cannot afford the increase? Honestly, I don’t know. Many businesses already cannot afford minimum wage (or Living Wage, which is higher). I would suggest exempting certain businesses, as DC’s Large Retailer Accountability Act suggests. This could work in a very competitive labor market, but those businesses may eventually have to increase wages in order to compete for talent in a less competitive market.
Then there’s the inflation argument. Yes, theoretically, inflation could be triggered if you have enough people making more money. If Ben’s Chili Bowl has to pay its staff higher wages, then it might raise the price of chili half-smokes to compensate. It may also raise prices simply because more people with more money are waiting in line and are willing to pay the higher price. But actually, over the last decade, inflation has been kept in check by a number of factors, brilliantly defying some economists’ expectations. And I’m not convinced that raising the minimum wage will be material enough to be THE cause of inflation.
In short, I think increasing the minimum wage would be a net good for the economy.
Do you support an increase in the minimum wage? Tell us why or why not!