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Raising the Minimum Wage to $9

This article was written by in Economy. 19 comments.


In his State of the Union address to the United States Congress and the television-viewing audience around the world, President Obama called for an increase in the federal minimum wage as a way to reduce poverty. If you believe that business owners have a right to pay whatever the market will bear, minimum wages, whether endorsed by the federal government or the state, are unacceptable. If, however, you believe that left unchecked, businesses are in a position of power over employees who need jobs and can take advantage of that power, a minimum wage of some form is necessary to help balance that relationship.

The federal minimum wage and its law protects most, but not all, workers. In some cases, state minimum wage laws pick up where the federal law stops, in other cases, state laws supersede the federal law, and in yet others, the state depends on the federal law for its citizens.

Who qualifies for federal minimum wage

You’re covered by the federal minimum wage law and other provisions of the Fair Labor Standards Act if the following are true:

  • You work for a federal, state, or local government agency.
  • You work for a hospital or health organization.
  • You work for a school, public or private, for-profit or non-profit.
  • A company that sells more than $500,000 a year.

You could also be covered by the federal law if you work at a company whose business involves interstate commerce or domestic service. Domestic service includes a variety of jobs, such as cooks, janitors, housekeepers, nurses, gardeners, and regular babysitters.

State laws vary, but a state’s minimum wage could apply to a broader set of occupations.

If you have a position with a salary rather than an hourly wage, or you have a position in management, you might be exempt from minimum wage laws, like the overtime provision. Once my position at a former company in the financial industry surpassed a certain level, I was no longer eligible for overtime. A raise and a promotion resulted in an effective pay decrease because I had been working so many hours in addition to the normal workday.

Who earns minimum wage

The Bureau of Labor Statistics has organized statistics related to workers earning minimum wage throughout the country. Half of minimum wage workers are under 25 years old. This age group contains a wide variety of types of families, though. This includes teenagers working at their first job during high school, living with their two-income-earning parents within middle-class communities, but it also includes heads of young households in poorer communities for whom their minimum-wage work is the only form of income.

If you work part-time, 35 hours a week or less, you’re more likely to earn minimum wage than full-time workers. The biggest group of Federal minimum wage earners — and those earning less — work in the service industry, mostly in food preparation and service. It’s typical for servers to officially earn less than minimum wage, relying on tips from customers to reach the required minimum wage.

In total, 3.8 million Americans were earning wages at or below the federal minimum wage in 2011. The Bureau of Labor Statistics notes that this figure is a low estimate, because it does not include salaried workers, who can still be earning an income that is equivalent to an hourly wage at or below the federal minimum.

What we don’t see on these figures are workers earning just cents above the minimum wage. Large companies might pay workers slightly above the minimum wage, not much to make much of a difference in people’s lives, but in order for the company to avoid the appearance of paying its workforce wages that would keep its workers in poverty or near poverty. It’s a method of staying out of the statistics. Walmart, for example, pays its sales associates an average of $8.81 per hour according to independent research.

This average is higher than the federal minimum wage; in fact it’s significantly higher. But it’s still not enough for a full-time Walmart worker (or part-time, like many are, for that matter) to earn enough to live above the federal poverty line for a family of four.

What President Obama is proposing

The State of the Union gives the sitting President a chance to express his ideals and provide some clues about his (or her) political agenda for the upcoming year. Not only does President Obama want to see the federal minimum wage increased to $9 per hour, he would like the wage to be indexed to the cost of living. Here is what he said:

We know our economy’s stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.

That’s why, since the last time this Congress raised the minimum wage, 19 states have chosen to bump theirs even higher. Tonight, let’s declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty — and raise the federal minimum wage to $9 an hour.

This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank, rent or eviction, scraping by or finally getting ahead.

For businesses across the country, it would mean customers with more money in their pockets. And a whole lot of folks out there would probably need less help from government. In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up, while CEO pay has never been higher.

So here’s an idea that Governor Romney and I actually agreed on last year: Let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.

The consequences of a higher minimum wage

The President points out that workers getting paid more means they have more money to spend, focusing on the economic side of the societal issue. For minimum wage families — not middle-class families with a teenager taking a part-time job to pay for his own car insurance — an increase in income will almost definitely be directed towards spending for necessities rather than saving.

With more money to spend among its customers, businesses catering to those with more money in their pockets will be able to justify price increases. And more than just minimum wage workers will have more spending money; an increase in the minimum wage tends to lead to pay increases for those earning somewhat more than the minimum wage, which in turn affects pay increases on a large scale.

Some businesses will have difficulty with this proposal. If a business relies on the availability of cheap labor, an automatic increase of wages, and we could be talking about an immediate raise of 24% from $7.25 to $9 if the new wage isn’t phased in over time (though it most likely would be phased in like the last minimum wage increase), certain business might need to cut back their workforce and increase productivity in order to meet the same level of profitability.

This comes at a time, after an economic recession, in a period where the employment market is still in the process of improving, when businesses are already trying to make the most out their employees without increasing human resources expenses through raises and additional hiring. Requiring the same or more productivity from a smaller workforce causes stress on employees and businesses, and stress results in lost work days and higher medical expenses, and the costs of both can affect a company’s bottom line as much as the wage increase.

Requiring businesses to pay a livable wage is a necessary part of having a society where citizens are able to thrive. Individual responsibility is important, though. I don’t want to have to rely on the government to dictate my wages. In addition to livable wages, as a society we need to encourage as many people as possible to get out of minimum wage situations. Family situations differ, and this isn’t always possible, and the minimum wage is important for those people.

Get an education or get the training you need to work in a career that will help you move towards financial freedom. Don’t have children until you’re financially viable for yourself, at least. These may be luxuries for families whose first and only concern is survival, but moving beyond the first level of Maslow’s hierarchy of needs.

Where do you stand on the issue of raising the minimum wage?

Photo: Flickr
IBIS, Bureau of Labor Statistics

Published or updated February 13, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 19 comments… read them below or add one }

avatar Thomas

Good article, a minimum wage structure is always important to have in place, however nowadays it seems many businesses will try and find ways around it as we are currently in an employers market. A min wage is put in place for a reason, that reason being to help those that have least skills and qualifications to be able to live at a reasonable standard and raise their families and so on, unfortunately a lot of the time the big companies tend to forget this.

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avatar Aaron

I consider myself a democrat but I think this would be an absolutely terrible move for two reasons. First, as you mentioned, it just considers things from the production side of things. If companies are forced to pay their workers higher wages they will pass that along to consumers in the form of higher prices. Someone may find themselves with higher wages but if their purchasing power stays the same or goes down, who cares?

More importantly, there are two inputs into production, capital and labor, and right now capital is receiving a much higher than normal share of the pie. If you make labor comparatively more expensive as an input, even greater resources will shift to capital and the imbalance becomes even more exacerbated than it is now.

Right now this would be a terrible idea and I hope it doesn’t go through.

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avatar Tom Dziubek

“If companies are forced to pay their workers higher wages they will pass that along to consumers in the form of higher prices. Someone may find themselves with higher wages but if their purchasing power stays the same or goes down, who cares?”

Exactly! Employees would get more money to buy more expensive products…products that went up in price because of the higher cost of labor to produce it.

Not only that, but the cost of government labor will go up, which means we’ll wind up paying for it in our taxes.

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avatar Steve

Increasing productivity is all well and good, but the truth is that there are businesses that are profitable at a $7.25 minimum wage that won’t be profitable at a $9 minimum wage. At least some of those businesses will close. Which is not to say that there is (or isn’t) an overall benefit to our society for raising it.

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avatar Christian L.

Luke,
I’m a fan of a higher minimum wage. As of Jan. 1 of this year, nine states either had a lower minimum wage than the federal one or no minimum wage law at all (http://www.dol.gov/whd/minwage/america.htm). To me, that’s too many workers with unprotected wages.

I would agree that a 24 percent increase in hourly wages is a lot for businesses to swallow. But I say tough. Figure out how to make more money or be content breaking even.

Goods aren’t getting any cheaper.

-Christian L. @ Smart Military Money

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avatar jim

I think people make too much out of minimum wage changes. Only about 3% make the federal minimum wage. Many states are already above it. A large % of the people on minimum wage make tips, work part time only or are teenagers. I’m all for raising it but its not going to change much. Just ask people in the Northwest… Washington state is at $9.19 with inflation adjustments. Oregon is at $8.95 with inflation adjustments.

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avatar wylerassociate ♦905 (Dime)

I’m in favor of a minimum wage increase but not right now when we are currently having a very shaky economic recovery right now.

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avatar Lance

I think raising the minimum wage would just lead to increased prices at the places that pay minimum wage workers which would hurt minimum wage workers. I would have liked it back when I was in a minimum wage job though. I don’t think the problem is the minimum wage jobs, I think the problem is the people who resign themselves to never get past those jobs. They should just be a stepping stone to a higher paying job.

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avatar Josh

When a business hires someone at a certain wage, they must expect that the employee will add more than the value of that wage. If someone is currently working for $7.50/hr, and they are adding $8.50/hr of value to the business, they will become unemployed when the minimum wage is raised. Permanent unemployment and poverty will increase if we raise the minimum wage. It’s common sense. Research by economists David Neumark of the University of California-Irvine, William Wascher of the Federal Reserve Board, and Mark Schweitzer of the Cleveland Fed shows that minimum wages increase poverty. It’s great when people have good intentions, but ignorance of the consequences is no virtue. It’s time to shift away from the 2009-2012 policy of good intentions toward caring about consequences in public policy.

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avatar jim

And many more economists disagree with what those economists claim and have papers to argue the opposite.

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avatar Josh

How “many more” economists disagree and have papers arguing the opposite? Are you saying that the number of economists who believe that minimum wages increase poverty is smaller than the number of economists who disagree with that assertion? If so, that is false.

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avatar Luke Landes ♦127,364 (Platinum)

Good luck finding an economist who doesn’t let either personal politics or the politics of his/her employer inform their choice and interpretation of data. On both sides.

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avatar Ceecee ♦796 (Dime)

Maybe it would be good to slowly phase in a new minimum wage by doing it in increments. The government may be shifting burdens here, as some minimum wage people also qualify for food stamps…..with a higher minimum wage maybe they would not. That means the companies would be buying some of their food instead of the government. I know that here in NJ, you cannot live on minimum wage unless you have six roommates.

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avatar Long

I’m a firm believer that the basic laws of economics will prevail. In this case, raising the minimum wage will push the supply of people willing to work upwards, while the demand for employees will remain stagnant. As long as business investment remains low, there won’t be very many jobs available at the higher wage rate. I say let the market do it’s job.

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avatar Anonymous

I think having a minimum wage is absolutely vital so capitalism doesnt totally take over and the saying take full effect where the rich get richer and the poor get poorer. In reality I know that may always be the underlying tone behind anything financial, but at least we can dream eh?

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avatar William Wood

minimum wage jobs cannot be expected to support a family. They are stepping stone jobs for youth, secondary jobs for primary wage earners, income subsidizing jobs for spouses, retirement subsidizing jobs for seniors, etc. Anyone who expects a fast food restaurant to support them and their family by flipping burgers is a fool. Doesn’t anyone realize how many jobs have been replaced by machines in the last 10 years and why? These are jobs that are never coming back. (Think ATMs, self- check out, automated voice response systems, etc.) Minimum wage laws do not “help” anyone. Their effect is almost 100% negative. They COST jobs, force businesses to close or to figure out a way to do without the employee and cause inflation which negates the increase in wage.

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avatar Jim

It’s good to hear the increase it mean’s people can get on their own two feet faster, it’s still not enough to support a family but it does give more people a chance to be affluent!

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avatar S. B.

It seems like there are reasonable arguments on both sides, so I don’t really have a strong opinion about this. However, I do think it’s rather silly the way politicians approach this on both sides. The minimum wage doesn’t change for years and years, even though other wages and prices change considerably over time. Then every ten years or so, we change the minimum wage in one huge jump with a spectacular political battle. This does not seem to be in the best interest of businesses or workers.

Why don’t we just index the minimum wage to inflation, just like we do with almost everything else, including income tax brackets, social security, 401(k) limits, etc?

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avatar qixx ♦1,813 (Half-Dollar)

I find too many people are looking for an answer. To me the minimum wage debate is similar to union strikes. People taking job’s below what they know they are worth then complaining they don’t make enough. I don’t make enough. I’m working to correct that. I don’t expect the government, my bosses, or union to solve the problem i walked into.

I’m a big fan of supply demand ecomnomics. Last year there were jobs that went unfilled because the company was not willing to pay someone enough to do the work. To fill those same jobs this year will require a higher salary or lower demand. I think too many people are afraind to say “No, i’m worth more than that.”

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