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Radio Talk Shows Vs. Common Sense: The Increase in the Minimum Wage

 

livingwageThe other day on the way home from work I heard a right wing radio talk show host say the following, and I am paraphrasing:

“The minimum wage is going up 10%. Therefore, in order for businesses to maintain the same level of profits, we should expect 10% of minimum wage earners to be laid off. This increase in the minimum wage, effectively, increases unemployment, increases the number of people looking for government entitlements, which is exactly the opposite of what this economy currently needs.”

The host cut to a commercial break, and I turned the radio off to think about that statement. It just didn’t sound right to me. It sounded too black and white. Economics is rarely that simple. So I thought about it.

Let’s look at the facts. Out of the roughly 300 million Americans, 200 million are working; the bulk of the nonworking Americans are retired or children. 5 million working Americans work minimum wage jobs. So 2.5% of all workers earn the minimum wage. Two-thirds of those minimum wage employees are women. Over the past few months during this “Great Recession,” 500,000 working Americans get laid off every week. The minimum wage increased from $6.55 an hour to $7.25 on July 24, 2009; an increase of 70 cents or 10.6 percent. The majority of minimum wage workers work in the fast food industry. The National Restaurant Association states that 29 cents of every fast food dollar earned goes to wages and benefits.

Green States with minimum wage rates higher than the Federal Yellow States with no minimum wage law
Blue States with minimum wage rates the same as the Federal Red States with minimum wage rates lower than the Federal
Brown American Samoa has special minimum wage rates  

Look at that last line, that 29 cents of every dollar earned in the fast food industry goes to salary and benefits. I question whether minimum wage earners are really costing the industry very much in the benefits category, but I will use the 29 cents,. If the minimum wage increases by 10%, that 29 cents number would also increase by 10%, or to 32 cents (again I rounded up to be conservative.) This minimum wage increase of 10% would cost the fast food industry an additional 3 cents for every dollar of revenue or 3%. In his book Fast Food Nation, Eric Schlosser calculates that a dollar increase in the hourly rate of fast food workers would increase the cost of a hamburger by a nickel.

The radio talk show host makes a big assumption in his statement – to compensate for the increase in the minimum wage businesses will reduce expenses (lay people off) instead of raise prices. Raising the cost of a Big Mac 3% would probably not be noticed by the customers. But a 10% reduction in labor force would be noticed by the customers, since would it presumably take longer to order and get your “fast” food. So the assumption that the increase in minimum wage would cause massive lay-offs seems unlikely.

Another fundamental flaw in the radio host statement is that he ignores that an increase in the minimum wage, puts more money in the pocket of the worker. Guess what people do with money? Spend it at businesses. At 40 hours a week at the old minimum wage, a worker gets $262.00 or $13,624.00 a year. Someone is living off the minimum wage, is probably working more than 40 hours a week, but again, I am just use the 40 hours work week for math purposes. (Interesting side note, another large employer of minimum wage workers, Wal-Mart, consider 32 hours a week full-time.) Under the increase minimum wage, they earn $290.00 a week or $15,080 annually. So the worker gets an additional $38.00 a week or $1,976.00 each year. Lets apply that increase to the roughly 5 million minimum wage workers, and assume they spend it. (With income of $15,000 a year, it seems illogically that they could actually afford to save the money.) But if 5 million workers had an extra 38.00 a week that was spent that is pumping $190 million into the economy every week or nearly $10 billion a year…and unless the wage is ever decreased, this goes on forever. In an economy that is in desperate need of people spending money, an increase in the minimum wage immediately and consistently will pump billions of dollars into businesses.

So with a little time, a little math, and little thinking, it seems t the radio host thinking is incorrect. It ignores the revenue side of the equation (laying off people vs. a minimum price increase) ind s purposefully manipulative. Using the facts laid out above, it seems that a much better supported argument could be made that the minimum wage increase is good for the economy.

The radio show host was “up against a hard break” and maybe after the top of the hour, he realized the errors of what he said, but its doubtful. Maybe his listeners, did like I did, and thought about it for a while and did a little math, again I doubt it. Or maybe I am what he calls a “Van Gogh” listener and do not find misinformation said tongue in cheek entertaining.

Sources: http://money.cnn.com/2009/07/06/news/economy/minimum_wage/index.htm

http://www.qsrmagazine.com/articles/features/116/minimum_wage-1.phtml


About Blayne Clements

    Blayne Clements

    I am a 30 something graduate from Austin Peay State University, where I graduated in 1997 with two majors (Accounting and Finance). I am a very happily married man, with one beautiful daughter. I enjoy a professional life of public service and a personal life of travel, reading, music, and always trying to learn from others.

    Email: climbingpossum@yahoo.com

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8 Responses to “Radio Talk Shows Vs. Common Sense: The Increase in the Minimum Wage”

  1. Beth Robinson Says:
    July 31st, 2009 at 5:25 pm
    Beth Robinson

    I think it is shameful for people making over say $40,000 a year criticizing the min wage increase. It is still not a ‘living wage’ as it was intended to be when first instituted.

  2. I_am_a_lead_pencil Says:
    August 3rd, 2009 at 3:32 pm

    Blayne, you said:

    “So the assumption that the increase in minimum wage would cause massive lay-offs seems unlikely.”

    Not massive layoffs, just marginal layoffs. Generally, employers do a little bit of both – raise prices and lay off/cut hours. In some cases, such as the recent increase in New Mexico, some employers have found it cheaper to replace a few jobs with mechanization. As wages rise other alternatives become more attractive. Another employer decided to clean his windows and mop basins on weekends himself rather than retain a part time helper. All of these decisions are made on the margins.

    The minimum wage hurts the least advantaged among us the most. You help a larger percentage of the working poor while simultaneously hurting that smaller portion of the working poor that are the least skilled and least advantaged. These are the people most in need of a chance in life.

    What should make the public enraged are politicians who enact these policies not because they help a majority of those currently making the minimum, but because they hurt the MOST in need, while standing on a podium championing them.

    In other words, is a policy just if it can be said to help out a majority of the poor at the EXPENSE of the absolute least advantaged of the poor. This is what a minimum wage does.

    Blayne, you also said:

    “Another fundamental flaw in the radio host statement is that he ignores that an increase in the minimum wage, puts more money in the pocket of the worker.”

    Economists understand that the money being paid to the worker is also money being removed from the employers pocket. Money the employer would have spent himself or saved and invested for future expansion. The later option is the precursor to all economic growth.

  3. Blayne Clements Says:
    August 4th, 2009 at 8:20 am
    Blayne Clements

    Thanks for the well thought out comment Pencil.

    Your comment about not raising the minimum wage hurts the really, really poor, is an interesting thought.

    However, if the government recognizes a min. wage of $15,000, the government then cannot recognoze a poverty level above that min. wage rate.

    The poverty level is somewhere around $12,000 a year. Poverty levels are used to determine a person’s need for government assisatnce (Pell grant, Title 8, food stamps, etc.) The poverty level is inherrently surpressed by the minimum wage. And if the minimum wage is not a living wage, the effect is worse.

    With a surpressed poverty level (the basis for most need based entitlements), the help given to lower incomes folks is also supressed – the assistance is not adeqaute to help them get out of poverty because the poverty level is set too low. It is the equivalent of someone being in a 5 foot hole, and the government throwing them a 2 foot rope, and then wonders why they can’t get out of the hole.

    Ultimately, a minimum wage that is not reflective of a living wage, supresses the poverty level, which in turn surpresses the help available to those that need it most, keeping them in a cycle of poverty for generations.

  4. I_am_a_lead_pencil Says:
    August 4th, 2009 at 3:25 pm

    Blayne, you said:

    “However, if the government recognizes a min. wage of $15,000, the government then cannot recognoze a poverty level above that min. wage rate.”

    I’ve an acquaintance who is 18, has lost his parents and lives with his two older sisters. He’d love to get an opportunity to work but he lacks even the most basic skills necessary to present a decent interview. He has no previous work experience (beyond a two months) and is lacking the most basic learned skills which we often take for granted but which are by no means uncommon at the lowest ranges of unemployment. His older siblings are supporting them (barely) but he’d just like a chance to START. He requires and asks for no poverty assistance and neither do his siblings. He is trapped precisely because he is not employable due to a complete lack of work history and presentation skills. He is a great human being who needs a chance. At some wage rate he is employable. The law won’t let him start. Somewhere, there is a restaurant owner who would prefer to not come in and clean windows on Sundays.

    Many who are currently receiving need based assistance could be employed at “some” wage rate. While this rate may not be “livable” based upon a typical families needs, it is almost certain to be a way out with which they can begin their ascent. This chance, supplemented with the blessings of aid from many wonderful charities, may enable them to advance their lives. Additionally, those like my acquaintance, who don’t require poverty assistance due to a larger working household, would have opportunities they do not have now. It is a sad and shiftless life when you aren’t even allowed a start.

    The minimum wage isn’t a floor, it’s a ceiling. Remove it and let them begin.

  5. Blayne Clements Says:
    August 4th, 2009 at 4:37 pm
    Blayne Clements

    “Minimum” wage implies a floor, a bottom – not a ceiling or limit.

    I am sorry your friend cannot find a job. My father has been under-employed since March 2007(he had a nice comfortable white collar job and is now doing every odd job he can find – BTW, no minimum wage for him, he gets paid by the job), so I can commiserate with you, However, removing the minimum wage and allowing someone to work your friend to death for a couple bucks an hour, hardly seems like an attractive alternative.

    Your friend should try increasing his skill base, whether through a GED or learn a trade (truck driving, plumbing, electrical) the Tech School by the Industrial Park.

  6. Blayne Clements Says:
    August 4th, 2009 at 4:39 pm
    Blayne Clements

    I made a typo. My father has been under-employed since March 2008 not 2009.

  7. I_am_a_lead_pencil Says:
    August 4th, 2009 at 8:16 pm

    “However, removing the minimum wage and allowing someone to work your friend to death for a couple bucks an hour, hardly seems like an attractive alternative.”

    To both of us, absolutely. To him it is an opportunity to begin. You have a willing seller of labor and (presumably) a willing buyer of labor at some price. Who are we to label it attractive? I can assure you that to him it would be.

    The minimum wage is a ceiling for those whose skills do not yet make them employable at the level of the existing “minimum”. The ceiling should be dropped for them. It is only a floor for those currently employed…and if that floor rises above their own particular level of productive contribution, they will soon fall through the floor via unemployment. Once unemployed, it now functions as a ceiling to them.

    Sorry about your dad.

  8. Blayne Clements Says:
    August 5th, 2009 at 5:34 pm
    Blayne Clements

    Pencil – This has been a good dialogue. You have a lot of good and interesting points. I encourage you to contribute to the website. It is a great forum to voice your opinion and start a dialogue with others, much like we have done.

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