The Case for a $15 Minimum Wage

In case you haven’t heard, Seattle’s fast-food workers went on strike last week to demand a $15 minimum wage and the right to organize their labor without intimidation. At the same time, economics professor Kshama Sawant is running for city council on a platform that includes that same wage increase. Other labor activists around the country have made similar demands.

The demand for a $15 minimum-wage, here in Seattle and across the country, is in the air.

Predictably, there are many who oppose such an idea. A link to a petition for a higher minimum wage on Good Jobs Seattle’s Facebook page displayed hundreds of comments disparaging fast food workers as lazy and entitled. What’s weird, though, is that many of the people who oppose a raised minimum-wage are themselves low-wage workers.

Why the hostility?

It can’t be that minimum-wage workers aren’t voicing a legitimate need. According to the Living Wage Calculator, a single adult in King County needs to earn a baseline of $9.64/hour to subsist. One single adult, with no responsibilities other than staying alive, needs more than the current minimum-wage to do so. For a single parent, the baseline jumps to about $20; an adult with a partner needs about $15. Families with more children have a higher baseline, obviously. So the cost of subsistence in King County is indisputably higher than the pay of a full-time minimum-wage worker. Assuming that we’re a society that wants poor people to be able to have children, it’s quite a bit higher. This is a fair assumption: David Manuel cites US Census figures showing that the average age of fast-food workers is 29.5.  (You can see an estimate of national living-wage here; the Seattle PI reports slightly higher numbers for King County living-wage here.)

How about the difficulty of the job? Could it be that minimum-wage jobs are easier than higher-paying jobs, and therefore should be better compensated?

Nope. Fast-food work is outstandingly unpleasant. As a recent Business Insider article puts it:

Fast-food jobs are notorious for low pay, monotony, and poor benefits, to the point where “McJob” came to stand for dead-end employment.

Unpleasant and dangerous. A 2011 report from the Bureau of Labor Statistics notes:

Food and beverage servers face many hazards on the job. Nonfatal injuries and illnesses among these workers tend to result directly from their normal job duties and include sprains, bruises, cuts, lacerations, overexertion, and heat burns.

Let’s be frank: everyone acknowledges that fast-food is among the most-punishing, least-desirable kinds of work available. The idea that fast-food workers are “lazy” is patently false; on the contrary, they are among the hardest-working employees in our economy.

This hard work translates into higher productivity. Fast-food companies are making record-breaking profits, despite the continuing effects of the 2008 financial crisis. Al Jazeera reports that McDonald’s profits increased by 135% between 2007 and 2011 (i.e. more than doubled), while the parent company of Taco Bell and Pizza Hut saw a 45% increase in profits over the same period. (See Forbes reporting on McDonald’s here.) The New York Times reports that Burger King just doubled its quarterly earnings.

These higher profits are a direct result of labor: cash registers, fry stations, and drive-throughs are just so much refuse unless they’re staffed by workers. In short, shareholders receive record profits because fast-food workers endure terrible conditions for next-to no pay. So it’s implausible to claim either that companies can’t afford a wage-increase, or that workers don’t deserve one.

A third reason given against a $15 minimum-wage is that it would create a drag on the economy, driving firms to hire fewer workers. This is actually backwards: A higher minimum-wage would accelerate the economy. As Bloomberg Business Week reported back in 2000:

A small but growing body of academic research suggests that living-wage laws do more good than harm. So far, they have imposed little, if any, cost to the 50 cities that have passed them, the studies find. And they have led to few job losses and have lifted many families out of poverty.

Part of the reason a higher minimum-wage won’t hurt the economy is that restaurants hire as many people as they need to meet demand. As long as restaurants are making significant profits, that number is independent of the minimum-wage: if McDonald’s needs 10 workers to meet demand, they’ll hire 10 workers regardless of their cost as long as that cost is low enough to allow for profit. In short, demand is a stronger determinant of job-creation than the cost of labor is.

Part of the reason that a higher minimum-wage will stimulate the economy is that workers and consumers are the same people: you have to make money to be able to spend it. It’s clear that the more consumers there are (i.e. the greater demand is), the more businesses will be able to expand and hire workers. But not all consumers are equal: poor workers spend a higher proportion of their take-home pay (and at a higher velocity) on necessities like food and rent, whereas higher earners can spend about the same amount of money (i.e. a lower proportion of their pay) and put the rest in savings for a rainy day.

The economy is a kind of ecosystem. Each organism in that ecosystem relies on constant interaction with other organisms to survive: shipping companies need shippers, restaurants need patrons, doctors need sick people, and landlords need tenants. The economic downturn we’re currently inside of has not been caused by a decrease in the total wealth in the economy; rather, the problem is that the wealth has become concentrated in too few hands, so that it cannot freely flow among the economy. In this context, it’s clear that a raise in the minimum-wage amounts to a mechanism for moving wealth back into the dynamic economy. That mechanism is low-wage earners, who can be counted upon to boost demand across the economy.

So a higher minimum-wage meets a justified need, counts as an earned reward, is fiscally plausible for companies, and will stimulate the economy. Why, then, such hostility?

I don’t have a well-supported answer, but I speculate that the answer has more to do with psychology than economics or morality. Economically speaking, America is a profoundly unjust country, with wealth heavily concentrated. In such an environment, very few of us have any serious economic agency: the job I hold is more dependent on the budgetary considerations of investors and (via elected officials) lobbyists than on my own action.

That’s scary. It’s frightening to be in the hands of a careless fate. And it seems to me that one of the most popular ideas in our country–that success is entirely dependent upon personal gumption, rather than factors outside your control–is popular in part because it helps us escape that terrifying scenario. If my fate in my own hands, then maybe I can make tomorrow better; maybe I’ll get that job I’ve been dreaming of, if the power to do so is in my own hands. I speculate that many of the people who so vehemently oppose a higher minimum-wage do so because they are heavily emotionally invested in bootstrap-individualism, and they’re invested in bootstrap-individualism because the reality–that the dynamics of the market are no more under their control than is the weather–is too terrifying to behold.

Not all of them, obviously. But that’s one hypothesis that would go a long way toward explaining why poor people get angry at poorer people and not at the rich who oppress them: “If I got screwed this badly, you should be, too.”

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3 comments

  1. Reblogged this on JTK and commented:
    My boyfriend recently took a macro class. Can you tell??

  2. Good evening! We discussed this on twitter. Going to make this brief.

    I’m not sure that an increase to $15 an hour is going to make a big difference to consumer spending. Wolfram Alpha estimates (from US tax data) that 8.176 million people make less than $15 an hour. On average, these people would be getting a $16,000 per year increase. Multiplied over these 8M people, that is a lot of money. But compared to a $15 trillion economy, that is a .87% increase, assuming all of these people get the increase, none get fired, and they all spend every cent in the US. In short, that is the best case scenario.

    Even then, that is likely not big enough to create a huge demand in the economy enough to create employment opportunities. Search costs for employees are likely to go up (if you higher fewer people, you want them to be higher quality). Also, you ignore the likely possibility that, given a doubling of the minimum wage, a number of these folks will be priced out of the labor market. And prices are likely to rise on the goods these people purchase.

    If our goal is to help people out and make them better off (even given using government policy) is the minimum wage the best option? Probably not. Earned-income tax credits, or even lowering taxes across the board, are more likely to give low-income workers more money in their pockets and business owners more money to expand their businesses, hiring more people.

  3. Chuck,

    My apologies for the delayed reply–it’s been a long weekend. I was unable to replicate your search on Wolfram Alpha, so I calculated the number of $15> Americans in the following (admittedly crude) way:

    I calculated that $15 per hour times 40 hours per week times 50 weeks per year equals an annual income of about $30k. I then referred this chart [http://en.wikipedia.org/wiki/File:Distribution_of_Annual_Household_Income_in_the_United_States.png] from the US Census and saw that about 30% of the working population makes $29,999 per year or less. Again, this is obviously a crude method (e.g. many low-wage workers can’t get a full 40 hours per week), but it seems to me to show that a sizable portion of the working population makes about or less than $15 per hour. So I still think that a sizable portion of the population would benefit from a $15 minimum wage.

    That said, I don’t see how this issue makes much difference to my argument: even if we suppose that relatively few workers would be affected by a min. wage increase, that’s still *more* consumer spending. I don’t claim that a min. wage increase is a panacea to a sluggish economy. I claim that, however big or small its effects are, they will include boosted consumer spending and thus an aggregate increase in jobs.

    Zooming out a bit, I guess I don’t really see how you’ve engaged that argument. I’m going to respond to some of your specifics; maybe that will help clarify where we’re not connecting.

    -You write that the “best case scenario” includes no one getting fired and everyone getting the wage increase. I don’t assume that no one will get fired; I do assume that, in general, businesses will hire a new employee when they fire an old one (so there’s no change in aggregate employment). You’re right that I assume that everyone will get the increased wage, because that’s what a minimum wage is: a mandatory minimum that every worker gets.
    -In your second paragraph, you seem to arguing circularly that because employers will hire fewer workers, employers will hire fewer workers. E.g. you say that employers’ search costs are likely to rise (and therefore, I understood you to be implying, they’ll have less budget for payroll) because they’ll be hiring fewer people–which is precisely the claim that I am denying. You then rephrase by saying that “a number of these folks will be priced out of the labor market.” Again, this seems to me to miss the central claim of my argument: that a higher minimum wage will ultimately create more jobs, via the mechanism of increased consumer spending. (Again, I could be wrong, but I don’t see how your argument engages mine.)
    -Re: your third para: I wholeheartedly endorse EITC. Lowering taxes “across the board,” on the other hand, might directly encourage investment, but would also erode government services which provide social stability, which stability is 1-an important end in itself, and 2-the foundation for a free market. So I’m deeply skeptical that tax cuts will have an overall positive effect on either job growth or American life in general.

    I know I probably sound pugnacious in my reply, because I am, but I want to emphasize how flattered I am that you took the time to thoughtfully respond to my Tweets and this post. Like probably most bloggers, my great dream is not to be paid but to be noticed and read. So, sincerely: thank you.

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