The Last Article on the Minimum Wage You Will Ever Need to Read

Conservatives posit many criticisms of raising the minimum wage, and this article intends to address the four most prominent: that a higher minimum wage only leads to firings, as businesses cannot afford as many workers if everyone earns more; that businesses also hike up prices to cover the costs of a higher minimum wage; that minimum wage jobs are “meant” for young people without families to support; and that unskilled workers don’t “deserve” as comfortable a wage as a skilled worker.

 

Does a higher minimum wage increase unemployment?

Studies and historical trends show that when the minimum wage has been raised nationally or at the state level, it has not meant an automatic rise in unemployment.

Comparing historic minimum wage rates and unemployment levels from the Department of Labor, one notes when minimum pay nearly doubled in 1950, increased throughout the 60s, or rose yearly from 1978-1981, unemployment remained steady or declined. In fact, from 1950 to 2009, the only time unemployment rose after a minimum wage increase was 1970-1975, which also happened to be during a deep recession.

In 1996, a minimum wage increase boosted wages for many millions, but did not decrease the number of jobs, according to the Economic Policy Institute. Robert Reich writes, “When I was Labor Secretary in 1996 and we raised the minimum wage, business predicted millions of job losses; in fact, we had more job gains over the next four years than in any comparable period in American history.”

The National Employment Law Project provides a long list of studies showing fears of higher unemployment are baseless. Importantly, in 2009, their meta-analysis of over 60 studies on the U.S. minimum wage concluded there was “little or no evidence” of increased wages causing unemployment.

The NELP looked at the 22 times the national minimum wage was increased between 1938 and 2009, finding that after 68% of the raises employment actually increased, even higher in heavily impacted sectors like hospitality and retail. Declines in employment after an increased minimum wage tended to be in times of recession. There was “no correlation” between wage increases and lower employment levels.

Some interesting research from 2010, published in the Review of Economics and Statistics, examined two decades of data on counties on both sides of state borders across the country (i.e., adjacent counties that have different minimum wages) and found “no adverse employment effects” in counties with higher minimum wages. In April 2015, the Seattle minimum wage rose to $10-$11 an hour, and by the end of 2016 unemployment was lower than at the time of the raise. In 2016, the Council of Economic Advisors examined workers from the hospitality and leisure industry affected by minimum wage increases since 2014 (18 states plus D.C. enacted raises). It found no evidence that employment nor hours offered to workers were decreasing — in fact, this industry saw a bit more hiring compared to states without raises.

What’s going on here? Business large and small are supposedly unable to afford higher wages. Where is the apocalyptic mass unemployment?

A central contradiction of capitalism is that the business class keeps labor’s wages as low as possible to reap more profit, collectively creating a massive part of the citizenry with little purchasing power, resulting in under-consumption, which in turn negatively impacts those corporations’ profits.

But providing more purchasing power changes everything. Creating a stronger consumer base leads to greater profits for the capitalists, the business owners. Liberal economists wouldn’t argue for higher minimum wages if they did not understand that higher salaries means more spending, which reaps businesses more profits. The system balances out.

It seems reasonable to conclude higher minimum wages do not increase unemployment. Now, this does not mean that businesses aren’t seeking to replace human labor with machines to save money, as with self-checkout screens at retail stores and fast food joints. Indeed, this is a huge problem that may one day leave all of us jobless. But given this evidence, it seems likely higher minimum wages do not exacerbate the problem — under the profit motive, it seems sensible that businesses would be working on installing new technologies as quickly as possible, regardless of what happens to the minimum wage.

Further, to address another possible criticism, some claim higher minimum wages hurt the labor participation rate, the percentage of adults in the labor force (a bit different than unemployment, the percentage of those in the labor force without a job). The participation rate has gone down since 2000 by about 5%, after rising from 1962 to 2000 by about 9%. That 1960-1997 saw many minimum wage increases should perhaps cast suspicion on the idea that higher wages automatically kill the participation rate (as should the fact there wasn’t a federal minimum wage increase from 1997-2006, the time when participation actually went south). But more importantly, there may not be enough economic research yet to draw a correlation. Economists point to many factors that may be lowering the labor participation rate (but not necessarily unemployment, as they measure different things): more young people going to college and graduate school instead of right into the workforce, the mass retirement of the baby boomers, a large increase in disability claims, more women staying home with children than in past decades, and so on.

 

Does a higher minimum wage increase prices?

Perhaps where that argument fails, another will triumph. If workers receive higher wages, will prices rise (inflation)?

Actually, yes. But as Karl Marx noted a century ago, this is not the end of the economic story. The rise in prices will be all but insignificant, and “supply and demand” reveals why.

Higher wages lead to increased demand. Increased demand leads to higher prices. If an individual has an increased salary, he or she will spend more on commodities in a specific industry. Working-class people will spend more on “necessities,” wealthier people will spend more on “luxuries.” Wherever there is increased demand, prices will rise.

But then, as happens in capitalism, production follows demand. This is the part of “supply and demand” people forget. When working people start buying more X, the owners in that industry begin producing more X. The supply of the necessity increases, and when supply increases, what happens to price? It falls.

Marx wrote (Value, Price, and Profit) that when higher incomes for working people lead to a greater demand in an industry,

…capital and labour would be transferred from the less remunerative [financially rewarding] to the more remunerative branches [industries]; and this process of transfer would go on until the supply in the one department of industry would have risen proportionately to the increased demand…

As the whole derangement originally arose from a mere change in the proportion of the demand for, and the supply of, different commodities, the cause ceasing, the effect would cease, and prices would return to their former level and equilibrium.

Marx provided evidence from his day. He noted the U.S. agricultural worker made double the wage of an English worker, but both prices and productive output were lower in the U.S. He explained how from 1849 to 1859, agricultural workers in England saw wages rise 40%, while the price of wheat actually dropped, even despite wars abroad and unfavorable harvests.

One need not look far for current evidence. Research from 2001 showed a 10% rise in the minimum wage translated to a 0.4-0.7% hike in restaurant prices, a 1.5% hike at fast food joints.

A 2004 study in the Journal of Economic Surveys looked at 20 price effect studies and concluded a 10% increase in the minimum wage leads to a 4% rise in food prices, but a mere 0.4% increase in overall prices.

A colossal 26% increase in the minimum wage in San Francisco caused only a 2-3% increase in restaurant prices; restaurants still ended up hiring thousands more workers in the following decade, even with another 25% minimum wage raise on top of that.

A 2012 report from the Food Labor Research Center estimates upping the minimum wage to $9.80 would raise fast food prices less than 1.5% and grocery prices less than 3% over three years if the entire cost of the increase was passed on to the consumer (and not taken out of profits).

A University of Washington study found that one year after Seattle raised its minimum wage to $15 an hour, retail, rent, and grocery prices had remained the same — despite mass promises by employers to sharply raise prices.

Fortunately, the capitalist drive to keep prices down (to undercut competitors and seize a larger share of the market) makes it more sensible to take most of the cost of higher wages out of profits, rather than raise prices. And again, greater purchasing power for the consumer class helps offset the cost and balances out the system.

And, FYI, a moment’s thought makes one realize that rather than the minimum wage creating crippling inflation, it is inflation that devalues the minimum wage.

Since the wage is not indexed to inflation, if the cost of living rises, the power of $7.25 decreases. Adjusting for inflation, today’s minimum wage is lower than that of 1968 (it would be $10.52 an hour if it kept up with inflation, $21.72 if it kept up with worker productivity, which has massively enriched corporate owners).

But since 1978, the cost of college rose 1,000%, medical care 601%, food prices 244% (inflation is driven by factors independent of minimum wage raises). Very low wages and a very high cost of living is why it is difficult to “pull yourself up by your bootstraps” and “just get an education,” as conservatives demand of poorer people. Stagnant wages and a skyrocketing cost of living is a recipe for entrenched poverty, and that’s on top of the ways poverty perpetuates itself (see Beyond Bootstraps: Why Poverty is So Hard to Escape).

 

Are minimum wage jobs “designed” for young people without families?

“Fast food and other low-wage jobs were designed for teenagers, not to actually support a family!”

This is an interesting objection, and seems dubious, considering there’s no evidence for it. So allegedly businesses (or, vaguely, society?) have “designed” or “designated” certain low-skill, low-wage jobs for teenagers and therefore teenagers work there. Could it not be that low-skill jobs are only “designed” or “designated” for low-skill workers, and since teenagers have no training or degree that is where they are most likely to end up when working after class?

Regardless, in reality these jobs are designed to make a profit; capitalists care nothing about age, as long as you’re physically capable of doing the job. There exists a large pool of impoverished people viciously competing for jobs, taking what they can to avoid bankruptcy and homelessness. 48% of Americans live in poverty or make low wages, so (unsurprisingly) 88% of workers benefiting from a minimum wage increase would be over 20 (and 44% have some college education; half a million college graduates currently make minimum wage; in 2014, 46% of employed college graduates under 27 were working in a job that did not require a college degree, and about 15% had part-time work but wanted full-time work). 52% of fast food workers rely on welfare because they do not make enough money, costing taxpayers billions.

Let it also be said that some teenagers actually are supporting their families — or saving for college. Even though some teenagers have these jobs just to earn spending money, it is unjust to hold back other minimum wage workers struggling to pay the bills because of them.

Adults desperately need these jobs, and need a decent wage to provide for their families. This idea that minimum wage jobs are “designed” for young people, who “deserve” miserable wages — and if you’re an adult worker “you have failed” to make wise life choices — simply ignores economic realities, like how there’s not always enough high-paying jobs available (even for people with college degrees!), how the cycle of poverty limits opportunities, and how corporations keep wages as low as possible for as many people as possible to increase profits.

Working people haven’t “failed.” They are simply trying to provide for their families the best they can at the given moment — a moment in which people do not always have the test scores, time, or money to attend college, a moment where hard work may lead to a job promotion or a new job that pays a bit better, but no guarantees: for every person who “gets in,” there will be many hard-working competitors, many with families to feed, whom there simply isn’t room for. The management jobs are few, the non-management jobs are many. We should not pretend that if all workers at the bottom of society simply worked harder then they could all be managers — who would they manage?

As for the notion that the minimum wage law itself wasn’t intended for ordinary adult workers with families, this is easily revealed to be absurd upon reading the first minimum wage law of 1938 itself (wherein Congress declares its “power…to correct and as rapidly as practicable to eliminate the conditions” that are “detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers”) or the words of FDR, the president who signed the law (“Without question it starts us toward a better standard of living and increases purchasing power to buy the products of farm and factory”).

 

Do unskilled workers “deserve” a low wage because skilled workers are also paid little?

“How dare minimum wage workers ask for the same wages as higher-skilled workers! They don’t deserve it!”

Conservatives — not unreasonably — often draw attention to the fact that a higher minimum wage could elevate people who work in the fast food industry, retail stores, and so on to the pay level of higher-skilled workers like EMTs, military personnel, teachers, and so on.

It is baffling how the low wages of one group is used to justify the low wages of another, despite the fact one group requires extensive training or a college degree. Too many occupations, whether skilled or unskilled, make too little. Too many families — both military and civilian, led by parents in the public education and fast food industries — are struggling to make ends meet. 50% of all American jobs make $34,000 a year or less, some $24,000 after taxes in most states (making it unsurprising 48% of Americans would be poor or making low income).

Obviously, all sectors of industry exist in a capitalist society, where wages are kept low to keep profits high. This downward pressure on wages affects skilled workers, too. Capitalists could award workers a greater share of the wealth workers create, but they do not, because they operate under rules of frantic competition and the obsessive accumulation and increase of profit. So the few become wealthy off the labor of the many. The few grow rich and the many, whether skilled or unskilled, remain poor by comparison.

Talk of what workers “deserve” is absurd. Yes, you don’t “deserve” more, even though your wages are kept low purposefully by owners who wish to increase profits and who are wealthy largely because of your labor (without workers, Steve Jobs could not have produced on a scale larger than himself)! “Worth” need not be determined by whatever low wage a capitalist can get away with paying you, whether you’re skilled or unskilled. You’re not “supposed” to be making a miserable wage — that is simply the rule of the current game. From a more sensible viewpoint, workers deserve every penny a business earns, as nearly all wealth is created by their hands: they create the good or provide the service to be sold.

(Clearly, occupations like the military are a bit different, as workers are paid by the State, and therefore it is the State to blame for inadequate wages, not capitalists. One might wonder that if the State can spend trillions on weapons and war, why can it not pay an E1 private more than $18,000?)

The point is that saying a fast food worker shouldn’t push for a raise because a U.S. private also makes dismal wages simply leaves everyone poor. Let’s not justify low wages for some people using low wages of others.

Instead, could we not support a raise for both? Could we not look approvingly at multiple groups pushing for a better standard of living? It is perfectly fine to still believe skilled, educated workers should earn more (that didn’t go away with the previous minimum wage increases, and is unlikely to go away with future ones) — but surely one can, at the same time, believe that those forced to take a fast food or other minimum wage job to survive deserves an income that can keep them above water and out of poverty. Are not the children of those families as worthy of a decent life as the children of an EMT, a soldier, or a teacher?

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