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Minimum wage is a touchy, often political, subject and it is often misunderstood. I suspect not many HD readers are concerned with the minimum wage. On the other hand, I see implications of changing and not changing it.
Few workers actually earn the federal minimum wage. The percentage of hourly paid workers earning the prevailing federal minimum wage or less was 1.1 percent in 2023. Minimum wage workers tend to be young, single, work part-time, and have an high school or less education. Details are available from the Bureau of Labor.
Nearly 80% of minimum wage workers are employed in service occupations, mostly in food preparation and serving-related jobs. Interestingly, many also receive tip income not counted in hourly pay.
In large corporations such as Walmart, Costco, Verizon, GM, nobody earns the minimum wage.
Most states have a minimum wage requirement above the federal level. Raising the federal minimum wage would have minimal overall impact on American workers.
When I was 14 I earned below the minimum wage working for my town. When I was 18 I earned the minimum wage in my first job, but never again and like you I suspect trying to live on $7.25 or even $15.00 an hour would present a serious challenge. On the other hand, many retirees do so today. The annual equivalent of much talked about $15.00 and hour is $31,200 using the standard work year of 2080 hours. Household income could be double.
Thirty states have a minimum wage greater than the federal minimum, 13 states follow federal law and 7 have no minimum wage law effectively following federal law. Most of the states without a law are in the south.
The minimum wage itself is not the primary issue, rather it is what that income may buy. In other words, income relative to the cost of living in a state. For example, Alabama has a minimum wage of $7.25 and the average annual gap in the cost of living is estimated at $23,719. However, in California with a minimum age of $16.00, the gap is $52,737. The higher minimum wage may be less of a living wage.
There is somewhat of a debate as to whether a higher minimum wage contributes to a higher cost of living. However, to the extent businesses can pass along the added expense in prices and higher wages drive more demand for goods and services, a higher minimum likely does increase the cost of living. Could this mean that legally rather than economically driven higher wages can be counterproductive?
Raising the minimum wage has often overlooked implications – pay compression for one. Simply put, if a minimum wage goes from $7.25 to say $15.00, every worker earning $15.00 or above will demand higher pay. In theory, at least a near doubling of pay to maintain parity with the jobs previously paid $7.25. In addition, raising any wage carries added costs for a business such as payroll taxes, certain state employment taxes and in some cases employee benefit costs.
How to determine fair pay is an ongoing debate and no matter the direction there are consequences for everyone.
Thanks, Dick. Spoken like a true HR pro.
FWIW – my first job, long before OSHA paid $0.75 an hour picking up golf balls on the driving range. I was given a bucket and a stick with a cup on it. No cart with a cage, just me. Depending on who might be on the range at the time, the job could require some athletic ability.
My first job was $0.75 in 1958, a bit safer running a mimeograph at the town library.
If we believe in capitalism, then in an open market, workers are paid the economic value of their labor given the available supply of workers and the demand for their services. The economic value of someone who can write computer code is many times that of someone who, for example, is a grocery checker. Around here grocery checkers make around $16.48/hour, or $34,278 a year. Unfortunately, a studio apartment goes for $2074 per month on average or $24,888 per year. Because of the narrow profit margin that retailers make on the sale of groceries, when the cost of labor goes up, the store opens more self-checkout kiosks.
So, around here, when the minimum wage goes up, those who receive it can then afford a better tent.
This is the dilemma that can happen when we need workers to do mundane work, but the economic value of the work is low. Perhaps we need a basic societal subsidy paid to everyone funded by taxes to provide for basic living expenses such a food, housing, etc. Heaven knows, that left to the operation of the forces of the market, people will sleep in the parks and starve.
We have established programs and tax policies
that address the issue you raise.
Earned income tax credit (EITC) and
SNAP as well as the child tax credit.
Benefits can be significant – I calculated
that a family of four earning 35 K, which
would be close to New York’s minimum
wage would have about 16-18 K of
benefits from EITC and SNAP.
In this area, the family of four would have to pay average rent of $31700 for a 2BR apt. Even with the benefits you mention they would have a very tough time covering their grocery and healthcare needs.
With the advance of AI, those computer coders will also be sleeping in tents, along with radiologists, paralegals and a bunch of other “white collar” workers. I see no way forward, with the reckless and unregulated adoption of AI, but mass poverty or a guaranteed basic income. But I have never been a die hard capitalist.
l generally agree with you. Although I don’t think AI will be able tocreate new code to handle new tasks. And let us not forget the millions who drive trucks if true self-driving is ever perfected.
I have actually had AI code a few simple programs, and it did pretty well. Integration of these smaller segments into a larger coherent program is another story, and will probably require human interaction for at least the next decade.
Possibly AI couldn’t handle the systems design, although I wouldn’t bet against it long term, but writing code once you have the design is pretty straightforward.
Not just truck drivers, all those taxi/Uber/Amazon delivery drivers.
Maybe the reason we haven’t found sentient life in the universe is because sentient life falls prey to hubris and engineers its own destruction….
The problem that I have with employers not paying a living wage (however you might define that) is that those businesses are being subsidized by taxpayers dollars and charities in order for people to have food and shelter, as well as medical care via Medicaid. I really was disgusted with Walmart taking advantage of these effectual subsidies while lining their investors with higher dividends. That’s why I rarely if ever shop there.
No worker in the richest country in the world should live in poverty if they work full time.
According to the MIT living wage calculator a single person needs $27.85 per hour in Nassau County NY. That’s $57,928 per year. In Birmingham, AL it is $21.22 or $44,137.6 per year where the median HOUSEHOLD income is $53,913.
What would happen to the economy if employers paid the statistical living wage? I don’t know, but the impact must be significant.
Ah this is highly political and a lot tends to align with individuals’ beliefs.
Personally I’ve never really bought the argument that paying staff a minimum/living wage would put lots of businesses out of business. To me if you believe in market efficiency those are businesses which should not exist if they cannot afford their employees a minimum standard of living. I have similar feelings about the growth in tip culture in the US, effectively it transfers responsibility from employer to customer (not challenging the traditional concept for restaurant servers etc but for counter service?)
And I don’t think government credits/top ups are an ideal solution. Again that is just subsidizing cheap employers.
At the margins I can see some merits for some of these things in social enterprises where there is no profit taker.
But obviously a transition would have short term consequences in terms of unemployment etc.
One aspect of raising the minimum wage is the effect it will have on the refundable earned income credit, EITC. The EITC is a tax credit designed to help low income workers. For example, at the current federal minimum wage, a married couple with 3 kids, both working 40 hours/week will earn approximately $30k. They will owe $0 income tax, and will be eligible for approximately $7000 EITC.
Now comes the proposed minimum wage of $15. The same couple now earns about $60k/year. Their EITC drops to approximately $700, reducing government spending by over $6000.
I’m not anti-EITC. I’ve personally seen it help hundreds of hard working but low income parents to put food on the table. But, are taxpayers payers indirectly subsidizing employers who underpay their workers?
I’ll leave it to readers to draw their own conclusion
I would guess that if the minimum was raised to at least $15 a lot of eligibility definitions would need to change, including the poverty level.