Tuesday, January 09, 2007

MINIMALISM

"People should be paid what they are worth."

Although it was not a major campaign point for many of the new Democratic congressmen, one of the first items on the table for the new congress is to raise the national Minimum Wage. Originally an Australian and New Zealand idea, the minimum wage in the United States was first implemented in 1912 in the state of Massachusetts and applied only to women at the time. At the Federal level, it was not until 1938 with the Fair Labor Standards Act that the minimum an employer could pay anyone was 25 cents an hour.

Minimum Wage NationallyOver the years, this has been raised several times, until in 1997 the last raise was to $5.15 an hour. Since 1989 businesses earning less than $500,000 annually have not been subject to federal minimum-wage rules. Many states have higher minimum wage requirements than the federal level such as Oregon which has it set at $7.25 an hour, and some regions of states set their own minimum wage, such as Santa Fe New Mexico with the highest minimum wage in the nation: $9.50 an hour. I'll examine the effects of that later.

George Will recently wrote about the effect of raising the minimum wage, bringing out a few statistics to consider.
Most of the working poor earn more than the minimum wage, and most of the 0.6 percent (479,000 in 2005) of America's wage workers earning the minimum wage are not poor. Only one in five workers earning the federal minimum live in families with household earnings below the poverty line. Sixty percent work part-time and their average household income is well over $40,000. (The average and median household incomes are $63,344 and $46,326 respectively.)
OK lets take that first block of numbers. He's pointing out that .6% of American workers actually work at minimum wage, around 480,000 workers. Of those, 20% are actually below the poverty line because the other 80% are actually working more than one job, have outside income, or more than one member of the family is working (another possibility is that they are working in tip-enhanced jobs such as restaurants and can sometimes make as much as their hourly wage in tips). This reduces the number of those working minimum wage who are actually at poverty level to around 96,000 Americans. Of those working for minimum wage, 60% work part-time and earn that wage.

Median household income (half of the earners make more, half make less) of those part time workers is around $63,000 a year. Average household income (add all their incomes up and divide by the number of workers) of this group is about $46,000 a year.

OK the numbers so far summarized: not very many people are working for minimum wage, and of those who are, most are doing so part time and only a small number of them are under the poverty line as a result of working minimum wage. Will goes on:
Forty percent of American workers are salaried. Of the 75.6 million paid by the hour, 1.9 million earn the federal minimum or less, and of these, more than half are under 25 and more than a quarter are between 16 and 19. Many are students or other part-time workers. Sixty percent of those earning the federal minimum or less work in restaurants and bars and are earning tips - often untaxed, perhaps - in addition to their wages. Two-thirds of those earning the federal minimum today will, a year from now, have been promoted and be earning 10 percent more. Raising the minimum wage predictably makes work more attractive relative to school for some teenagers, and raises the dropout rate. Two scholars report that in states that allow persons to leave school before 18, a 10 percent increase in the state minimum wage caused teenage school enrollment to drop 2 percent.
Summarized: the bulk of people earning minimum wage are below age 25, students or part time workers, and most of them work in restaurants or bars and earning tips on top of the minimum wage. The great bulk of these people will within a year be earning more than minimum wage due to promotion and raises.

He also brings up an unfortunate side effect of raising the minimum wage: dropouts. For high school students, working at school for no pay and working at a job for bling is a no-brainer, and studies show that raising the minimum wage actually can increase dropout rates as students are attracted to money instead of scholarship.

Commenters responded to these thoughts:
If only 20% of minimum wage earners live in households under the poverty line why should wage increases be mandated for the other 80%?..Getting rid of it would encourage workers to think 'what do I need to get by?' and employers to think 'how much do I need to offer to get the job done?' This will invariably be higher than the current minimum, but where it is lower the parties will at least have a choice to take it or offer it or leave it. Imagine: all parties affected by a decision having choice, now that's something people could LIVE with.
-by warren


Why should the state be able to tell someone he can't work for $1 an hour if he's willing to, and if working for $1 an hour will guarantee him a job? People should be allowed to set their own standards for employment, and enter into contracts without state interference. A person's right to negotiate or contract for his or her future employment is really just an extension of the debate over the minimum wage. The effect of a minimum wage is to deny workers the opportunity to negotiate for their services at a price employers are willing to pay. Abolition of the minimum wage, as Mr. Will and others advocate, would be an important step in fulfilling the promise of a job for everyone who wants to work.A contract can liberate people to commit their future jobs in a way that potential employers can reasonably be expected to rely on. A contract of employment, which the employer can call upon the government to use its powers to enforce, if necessary. Repealing the 13th Amendment would restore to every American the freedom of contract.
-by DA


G Will may be right.I am alive at 85 and remember when a beautiful home cost $1000, a shiney new Chevy $500, a pair of shoes 3.98 Wages were $1 an hr. Salaries 75. per mo. Today we are handling lots of money The house costs 200,000, the Chevy 25,000 and the shoes $150. Seems to me we are spinning our wleels
-by old Ray


I think George Will should get a minimum wage job and work it for a year then write us all a report. Otherwise he doesn't know what he is talking about.
-by Al V


Only problem Will didn't address is the most important...you can't "buy" votes with 0 minimum wage. Businesses will accomodate in a couple ways...they won't hire new employees and many won't hire some snot-nosed newbie still in high school for an entry level job for that amount. They will hire the older more experienced worker if they can. For 7.00 + an hour they don't want to have to train and deal with the inexperience and turnover that employing entry level employees often brings. For the higher costs they want the older more mature and reliable workers.SHORT ROUND:Without those "rich snobs" as you call them,there would be one helluva alot of unemployeed people in this country. Maybe a little study time of European economies would help your short-sighted biggoted brain to expand a tad.
-by ????


we should institute a MAXIMUM wage that one can earn... no more 400 million dollar bonuses for oil execs.hmmm bet the republicans would go for it?
-by better idea


Okay George, I double dog dare you to live for three years on wages earning $6.15 an hour, support two teenagers, rent a three bedroom home at $750.00 a month, pay all the utilities, pay all doctor bills out of your own pocket, plus any other cost like auto insurance. gas, etc. And then report back to us. And no fair cheating.
-by tidbits


$750 a month for rent? this sounds like the first mis-step. We all would like to drive a new car, have all of the premium tv channels, have two cell phones and eat out twice a week or more. Unfortunately reality must kick in and you can look at the finances and see that the new car is not an option. If you look around you can find a good used buick or such for nearly $1,000. I know I just bought a 94 buick. I am more than happy to live with the 4 local tv channels received over the air waves. I do not have a cell phone and do not eat out any more than once a month. I then had to get realistic about the renters lifestyle. I was able to buy a small house and with all of my payments escrowed the payment is $600.00. It is not a large house like Mom and Dad's but for a first house it is similar to what Mom and Dad first bought. Your parents did not get what the have overnight and neither will you. If you watch your credit and live within your means you can live off a low wage. If your thinking what I have mentioned above sounds unrealistic I will let you know that I have two kids and I am putting my wife through college at the moment. If your wages are so low pell grants and student aid will help you get your education to better yourself and earn a real wage. You have to continually be trying to better yourself if you ever want to succeed. So quit crying rivers and start watching what your doing and earn that living wage.
-by to tidbits
Much of the commenting was on the idea of minimum wages rather than the content of the article, which is often the case in my experience when this topic comes up. George Will gave hard numbers from national data, and the response was "yeah well I know a guy..." and "lets see you live on..." I prefer good, substantive, intelligent discussion but in this case the comments make a different sort of point: some topics people are so obstinate and divided that they simply don't care what the facts are or what someone says, they've already got their 15-page carefully-typed response ready and start talking almost before the article is over.

Raising the minimum wage is always a popular idea with most people, it seems fair and images of starving children as a man slaves away at minimum wage are often brought to mind. Pay them more, those greedy businesses can afford it!

RestaurantExcept... often, they cannot afford it. What may not seem like much of an increase to you is actually significant for business, who pays matching taxes based on the income of the employee such as FICA. When their wages go up 25 cents, FICA goes up, and it goes up for every single employee they have. Some businesses are near the margin already, and an increase in costs forces them to either raise prices, fire people, cut hours, or close.

Because of this effect, ultimately, raising the minimum wage in an area seems like it should cause problems for the local economy, but an examination of state and national unemployment and growth records shows there is no spike in either indicator following national or state employment records. There is a rise in the number of businesses folding at the state level, but the workers are able to move over to other work. The prices overall rise, causing a small increase in inflation, and the overall trend in the nation has been constant inflation for decades. Consider the commenter above comparing the cost of items in the 70s and the new millennium.

The primary reason the minimum wage increases don't have more effect on the economy is that they tend to lag behind the economy, the value of the wages by the time the minimum wage increase takes effect has dropped in the intervening years because of inflation.

A little-considered fact about minimum wage increases is that they affect more than simply people earning it. First, when minimum wages increase, it is rare indeed that anyone other than that level get a raise. When Bill the entry worker at 17 years old gets minimum wage at his first job, the guys who have worked there for a year and are older earn more. Bill gets an increase in his wages when the minimum wage goes up, but nobody else does. The exceptions to this general rule are union workers: from what I understand the AFL-CIO and UAW, for example, get a matching raise when the minimum wage goes up. If any commenter knows differently, let me know.

However, consider the effects on prices. If a business is going to pay more to employees, few are earning so much they can just absorb the cost of paying employees more - there are some that can (oil companies, for example), but most cannot, particularly smaller businesses. In order to absorb this cost, a company has to raise prices, and since few but the minimum wage earners actually have gotten a raise, the earning power of each worker's dollar has decreased. That is one statistic that consistently shows up in my studies of minimum wage increases: the value of that earning drops immediately after the increase.

At a national level, the federal government's minimum wage level tends to lag significantly behind the states, so when the federal minimum wage is raised, it has a minimal impact on individual states except those who had a lower minimum wage.

The bottom line is that most businesses pay more and most workers earn more than minimum wage. Further, most people who earn minimum wage end up earning more within six months of being hired; minimum wage is entry wage. These are facts that all should be considered when examining this topic.
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