Safety Net
6:47 am
Thu December 12, 2013

Commentary: The ‘Frugal Comfort’ Of Minimum Wage

A push is going on to enact a $15-an-hour minimum wage. While some increase may be justified, that would make it more than a safety net.

It is a national evil that any class of Her Majesty's subjects should receive less than a living wage for their utmost exertions --Winston Churchill, 1906

 The Churchillian observation raises an interesting question: why should the queen concern herself with the minimum wage? After all, she’s always been rather well compensated for her labors, whatever those may be. 

In reality, Her Majesty’s interest in the plight of commoners was as much a matter of self-interest as it was an exercise in philanthropy because history demonstrates that her royal survival depended on a measure of social justice. 

People who profit from the status quo have a vested interest in maintaining the existing order, and dire inequity tends to be socially disruptive. The French Revolution, you’ll recall, began with bread riots in Paris.

But agreement about what constitutes a fair minimum has always been elusive. Australia’s 1907 Harvester Decision defined such a wage as one that would allow a man, his wife and two children to “live in frugal comfort.” Although vague, that standard is probably as good as any.

At present, disgruntled fast-food workers in the U.S. seem to feel they could attain frugal comfort if they were paid $15 an hour. Anticipating a 40-hour work week, that translates to $31,200 annually. Let’s place that demand within a historical context.     

The federal minimum wage was initiated under FDR in 1938. At the time, it guaranteed the princely compensation of 25 cents an hour — or about $4.07 in today’s dollars. Over time, the rate has fluctuated widely relative to inflation.

Its adjusted valuation peaked in 1968 with an hourly equivalent of $10.56. At present, it stands at $7.25. President Obama has proposed raising the rate to $9 an hour, which would return its buying power to about where it was in the early 1980s.

Critics contend that such a hike would be an inflationary job-killer that would retard economic growth by unduly burdening employers. Proponents counter that the increase would stimulate commerce by giving more cash to the people who are most likely to spend it.

Not surprisingly, conservatives oppose the boost while liberals support it.

Because the ideological bias of the expert tends to determine the content of his forecast, economics is often referred to as “the dismal science.”

Most attempts to objectively gauge the effects of modest raises in the minimum have found that they have little impact one way or the other. One study looked at the outcomes of 91 wage increases between 1987 and 2012 that took place in states with an unemployment rate at or above 7 percent. One year after, unemployment had fallen in 47 instances, risen in 40 others and was unchanged in the remaining 4.

Workers demonstrate in support of a higher minimum wage earlier this month.
Credit Bill Greenblatt | UPI

Progressives can thus claim the wage hike improved employment prospects in 52 percent of cases while conservatives can argue that it made things worse 44 percent of the time. The most reasonable interpretation of the data, however, would seem to indicate that factors other than the minimum wage determine rates of employment.

That finding makes sense because, popular economic myths notwithstanding, employers hire workers for one reason only: They need them to generate profit. Tax cuts will not prompt companies to hire unneeded laborers, and wage hikes will not compel layoffs of the personnel necessary to continue operations.

As is the case with any commodity, the price of labor fluctuates over time. When it rises, businesses either absorb the additional costs or pass on all or part of them to consumers.

That said, the proposal to more than double the minimum to $15 per hour is unrealistic. The business model of the fast-food industry is predicated upon relatively cheap labor. Raising entry-level compensation to more than $30K a year could force many owner-operated franchises to close shop.

Further, it’s not at all clear that such wage inflation is socially desirable. While it’s true that many low-income workers presently qualify for supplemental public assistance, at least they’re working. Eliminating their jobs hardly figures to improve the situation.

And we’re having a hard enough time getting inner-city kids to finish high school as it is. Should the fast-food industry survive the mandated pay raise, even more borderline students will be lured away from academics by the immediate prospect of a $15-an-hour job flipping burgers, thus all but ensuring their permanent residence near the bottom of the economic pyramid.

Like welfare and unemployment compensation, the minimum wage is part of a safety net that benefits all income levels by promoting economic stability. Viewed in that light, it is defensible both as a humanitarian measure and for its social utility. But the comfort it provides is frugal by design.

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