The issue of raising the federal minimum wage will likely be a hot topic next year. Last increased in 2009, the current federal minimum wage is $7.25 per hour. (That works out to around $15,000 per year, before taxes.) Arguing that any increase in the minimum wage does more harm than good, the Republicans in Congress are lining up to block any attempted increase. The Democrats, believing that an increase in the minimum wage is not only necessary to keep low-paid workers above the poverty line, but that an increase stimulates the economy, are aiming for a $15 per hour minimum.
With Republicans in full control of Congress, the idea of any increase in the minimum wage seems bleak, but there is one fly in the ointment. The person who will occupy the White House, Republican Donald Trump, has previously indicated a willingness to increase the minimum wage to $10 per hour. Regardless, there will be the same heated arguments, for and against, a higher minimum wage that have been thrown around for almost 80 years.
In 1938 Congress passed the Fair Labor Standards Act. Among other things, the law mandated a federal minimum wage of $.25 per hour, along with a work-week not to exceed 44 hours. The legislation culminated decades of fierce political battle (not unlike the contemporary battle over universal healthcare) pitting business interests, firmly aligned against what they felt was interference with the “free market,” against social interest groups seeking to end the near “slave-like” conditions under which people were forced to work.
Fighting to dragoon the legislation, business interests screeched that the idea of a government mandated “minimum wage” was another step on the road to Socialism that would wipe-out profits, cause higher unemployment and the ruination of Capitalism. President Roosevelt would have none of that when, in “fireside chat” the night before signing the controversial legislation he said, “Don’t let any calamity-howling executive with an income of a $1,000 dollars a day, tell you that wages of $11 a week is going to have a disastrous effect on all American industry.”
Looking back now it’s easy to wonder why there was such a fuss was over a paltry $.25 per hour for work. (It is indicative of how little employers were paying the workers for their labor.) During the almost 80 years since the passage of minimum wage legislation, one might believe that employers have come to accept that it is natural and right to pay workers wages that don’t condemn them to a continuing cycle of poverty. But if you think that, you would be wrong.
Anytime a proposal is put forward to raise the minimum wage, the business community comes together with the same draconian arguments that were used in the 1930’s. Arguments such as: Any increase will put thousands of small companies out of business. Profits will be decimated. Prices will have to be raised and this will drive away business. Thousands of low-paid workers, those intended to be helped by the increase, will lose their jobs.
In the years since it was first enacted, the minimum wage has been increased 22 times, under 12 different presidents. According to the Bureau of Labor statistics there are 78.2 million workers (58 percent of total workforce) paid on an hourly basis, of that number, 2.6 million workers are paid at the current federal minimum of $7.25. This means that an increase in the minimum wage would impact only 3 percent of all hourly paid workers.
So what is all the fuss about?
The most common argument in support of the minimum wage is that it protects the workers at the lowest rung of the socio-economic ladder. These workers, many of whom represent marginalized groups (women, minorities, youth workers, the disabled, and so on), simply don’t have the bargaining power to fight for a minimum living wage without government intervention.
Those who oppose increasing the minimum wage contend that a higher mandated minimum wage actually hurts the lower-paid workers it is intended to benefit. They argue that the increased cost to smaller and marginally successful businesses will force owners to layoff existing employees and prevent them from hiring others; ultimately causing an increase in unemployment.
Another argument against an increased minimum wage is that it will cause inflation. The logic is that if an employer is forced to increase minimum wages from $7.25 per hour to say $10 per hour, the cost will be passed on to customers in the form of higher prices for the same goods and services. The “experts” may be right, but it seems illogical that a marginal pay increase for 2.6 million of the lowest paid workers, out of a total of almost 125 million full-time employees, would be little more than a blip on the inflation scale.
Those favoring a higher wage argue that increasing the minimum wage will attract a higher quality worker, reduce turnover and actually save the employer the expense of constantly having to find, hire and train new workers. The proponents of a higher minimum wage promote the idea that those receiving increased wages will spend them on goods and services that will in turn stimulate the economy and increase profits.
There have been scores of economic studies that can be taken to “prove” the case for either side of the minimum wage controversy, which means that both sides remain mired in theory, rather than reality.
I have my own study …
In 1963, when I first started working, the minimum wage was $1.25 per hour. Since that time the minimum wage has been increased 15 times to the current $7.25 per hour. Each time an increase was proposed there were the same old doom-and-gloom arguments that any increase would upend the “balance” of the free market, stifle economic growth, fuel inflation, drive thousands of companies out of business and increase unemployment. And you know what happened? Just the opposite: Employment, profits and the economy have always grown following an increase.
Yes, there will be a heated debate over minimum wages next year. The Democrats will propose and the Republicans will oppose. What will be different about the debate is that there will be – for the first time – a Republican president who has actual, real-life experience as a successful businessman. Trump has already suggested that for ethical and business reasons he sees a value in increasing the minimum wage. (Not as much as Democrats will propose, but nevertheless an increase.) It will be interesting to see how the Republicans in Congress react to one of their own on the other side of the minimum wage debate.