Ask anyone on the street his or her opinion of a hike in the minimum wage in the U.S., and the answer will likely depend on whether that person is on the receiving end of a payroll, or the paying end. More specifically, it may depend on whether he or she is being paid at the current minimum wage and, of course where that person is positioned along the political spectrum. It is inevitable that when federal law meets money, the talk will eventually turn political, and political alignments will begin to form around the debate.
The subject has indeed come up in recent political discourse, with President Obama announcing his support of a minimum wage increase to $10.10 per hour from its current $7.25, along with the threat to act with phone and pen if the Democrat backed bill does not pass. His proposal would seem excessive to some, but positively moderate by comparison for others across the political spectrum who were taken aback when some McDonald's employees, with backing from the Service Employees International Union (SEIU), walked off the job before Labor Day last year and expected their demand for $15.00 per hour to be taken seriously.
If the McDonald's employee walk-out accomplished little else, it sparked a new discussion among politicians on both sides of the aisle, with a new dollar figure to kick around. The political left saw it as an opportunity to champion McDonald's "working poor" heads of household, while the right answered with surveys that suggested that 85% of McDonald's employees are actually middle-class suburban kids in search of extra money to, perhaps, support their texting habits or pay for their car insurance.
The reactions to this action ranged from the dubious claim on the left that the cost of a Big Mac would not be raised one bit, and an equally questionable claim came from at least one conservative pundit that, if a $15.00 per hour rate were in effect, his Big Macs would soon be prepared and delivered up by a machine, with the worker sitting at home for $0.00 per hour.
Interestingly, Forbes magazine posits that, ultimately, both are likely true. In the short term, McDonald's simply could not expect their customers to absorb the increased labor costs in a highly competitive market, without expecting a lower demand for their products. Supply and demand - and competition - generally have a greater impact on prices than labor costs. Volume is crucial to a fast food restaurant, which is why the food is fast. McDonald's shareholders would take the hit, but their shares would hardly become the new kid on the block among the array of new penny stocks.
it is also a fact, however, that since the beginning of the industrial age, labor costs are most often what have driven innovation and mechanization, at the expense of jobs. Just ask anyone who once set type for a newspaper printing press. Fast food providers, like the rest, would ultimately find their answer in technology, and yes, some employees would go the way of buggy wheel makers. At some point, customers may be waited on by a box with a voice that sounds suspiciously like "Siri" on their smart phone. She may even be better at calculating change, without wiping her nose on your receipt, and with a slightly friendlier sounding electronic "Thank you!"
The City of Seattle will provide an interesting test case for this kind of rate hike as it's new phased-in $15.00-per-hour rate is fully implemented. Predictably, reactions have ranged from sheer ecstasy from employees to outright panic among some business owners, some of whom are warning of something just south of a local economic Armageddon. Others are scrambling for ways to cut employee benefits and other overhead costs. It is unknown whether a new Robo-waiter is currently on the drawing board.
Like the blind men who descibe an elephant based on the first part of its huge body that they encounter, some see a nationwide minimum wage hike as a $450 billion annual infusion of cash into the economy for low wage workers, one that would ultimately benefit business. Others see it as a huge hit to an already over-regulated business environment, with massive layoffs and wholesale bankruptcy in the offing.
But back to reality, the $10.10 minimum wage proposal, while considerably more moderate, is still destined to provide its share of debate. Some will point out, correctly, that the current $7.25 minimum rate has not kept pace with inflation. Adjusted for inflation, the $1.60 rate that was the standard in 1968 should now be worth $9.25. If the rate of productivity among American workers were taken into account, the current rate would stand at $21.72, according to the Economic Policy Institute.
That last number, if used sincerely as a model for the minimum wage, would be shot down as irrelevant economic La-La Land by some who would point out that what the study, in calculating "worker productivity", does not take into account is the massive business investments in machine and computer technology that have improved worker's ability to be productive, with less actual work. With no NSA spying tactics at his disposal, even President Nixon, after taking office that same year, was forced to use 1960's Radio Shack technology to record his deeds. Technology has made political mischief much more user -friendly now.
The Fair Labor Standards Act of 1938 established the hourly minimum wage rate at 25 cents. It has been adjusted 22 times since then, in part to keep pace with inflation, but the reality is, it has often fallen short of that goal. As a result, the real purchasing power of the minimum wage has decreased substantially over time.
If the progressive view is a simplistic one - that a minimum wage increase would simply improve quality of life for the working poor, lift some from below the poverty line, and provide a greater incentive toward productivity, the more conservative argument against the $10.10 proposal, and the Seattle model, is a bit more complex. Any threat of immediate large scale job loss may be disputed, but coming on the heels of new Affordable Health Care Act regulations and costs, the question of timing is of genuine concern. One Seminole small business manager told the Sentinel that his costs to cover the "Obamacare" requirements would increase his employee overhead expenses by an estimated $40,000 per year, with less insurance coverage than his employees previously had, even without any mandatory wage hikes.
A perhaps more expansive supply side argument is that any benefit to the working poor that might be provided would be short-lived, as higher wages simply become part of a larger inflationary cycle. As the rising labor costs would soon be reflected in the price of goods and services, the cumulative effect is that the working poor, himself a consumer, will ultimately pay the price at the cash register anyway, until the next minimum wage hike.
Another argument suggests that, if a company is forced to pay a higher minimum wage to its low-level employees, the more skilled employees who have worked to improve their value and standing for a higher wage in the workplace, are unfairly punished with artificially lowered wages as companies try to limit their payroll expense to meet the mandate. Discretionary raises take a back seat to those that are required by law.
A more libertarian view is that government should not be in the business of setting wages at all, that low wage work at the entry level provides an incentive to the individual to improve his or her education and experience to achieve a level of skill sufficient to improve his or her economic standing. Let the natural ebb and flow of the market choose its winners and losers.
Whichever way one might lean, there is no more compelling argument for achieving better wages than the workplace competition that occurs during periods of full employment. Long before the recent AHCA mandates, company paid insurance policies and other perks, along with higher wages, were used as an incentive to attract better workers during one of those periods at the height of World War II. Both the Clinton and Bush administrations saw near full employment at times, with eight-year averages that settled at 5.20% and 5.27%, respectively. (In the U.S., a 5.0% unemployment rate is considered "full" employment. Conventional wisdom dicates that about 5.0% of the population is functionally unemployable - that gentleman down the street, for example, with the goat's head tattooed to his face and the nine iron piercing his nose.)
The devil, as they say, is in the details. How to return to full unemployment and an expansion in the middle class that only higher wages can achieve - and whether it is even an attainable goal at this point - will be the subject of debate for some time to come.