The Winners and Losers Of Raising The Minimum Wage
After the city of Seattle voted to raise its minimum wage to $15 an hour earlier this month, the discussion over the pros and cons of raising the minimum wage continues to heat up. In Missouri, the minimum wage is $7.50 an hour, 25 cents higher than the federal minimum wage of $7.25.
Most can agree there will be winners and losers if a wage increase happens in Missouri, but who the losers would be and the overall effect on the economy still remain up for debate.
Lindenwood University economist Howard Wall is against raising the minimum wage.
“If you raise the wage that’s required, you’re basically making it illegal to hire the lowest-skilled workers because no one is going to hire somebody who is not bringing in that much revenue in terms of productivity,” said Wall, who is a researcher with the Show-Me Institute.
Citing research from University of California-Irvine economist David Neumark, Wall said that about half of the people working minimum-wage jobs come from households that are above the poverty line.
“It’s tough to keep everything up to date, but a few years ago it was about 45 percent of people working for minimum wage were in households that were earning more than $63,000 a year. So if you raise the minimum wage they get more money; that has no effect on poverty, obviously,” said Wall.
Restaurateur Chris Sommers and St. Louis Workers' Rights co-chair Martin Rafanan were surprised by the statistic, saying that the number doesn’t reflect the population they work with.
“My work with fast-food workers across the state indicates that the predominant group of folks that we’re working with is low-income people, under poverty level, really, with the wages they are making,” said Rafanan, an Evangelical Lutheran minister who helped organize the “St. Louis Can’t Survive on $7.35” protests last fall.
Sommers, who co-owns Pi Pizzeria and Gringo restaurants, said he decided to raise the minimum wage at his restaurants to $10.10 an hour because he found that his workers were “working so hard and they couldn’t fill the tank of gas. They couldn’t get the car repaired to get to work. And so sometimes they were getting written up or terminated for job performance because they couldn’t get by.”
Rafanan emphasized many hard-working, skilled workers are forced into minimum-wage jobs because those are the types of jobs that have been most available since the recession.
“According to the Bureau of Labor Statistics, 48 percent of jobs by the year 2020 will be McDonald’s type, low-wage jobs,” said Rafanan.
To give the perspective of a low-wage worker, Justin Johnson called in to the show. He is part of the “Show-Me 15” campaign to increase minimum wage for fast-food workers to $15 an hour in Missouri. After working at McDonald’s for 3 years, he is paid $7.60 an hour and is scheduled to work about 20 hours a week.
“I take home $300 and some change every two weeks,” said Johnson, who is the father of a baby girl. “Pampers alone is $25.”
All three panelists agreed many needed help, but Wall didn’t think enforcing a higher minimum wage was the answer. Like Neumark, Wall believes that the Earned Income Tax Credit is a more effective method of reducing poverty than raising the minimum wage because it is targeted to low-income households.
“That actually is a form of a negative income tax,” said Wall. “The less you earn, the more the government might actually be giving you. And that works as a wage subsidy."
Who pays for the increased wages?
After a few months of paying his workers more, Sommers said everything is working out for his restaurants. He hasn’t had to raise his products’ prices. Increased worker productivity, less turnover and better turnout at the restaurant due to a positive response from the community has made up for the increase in his expenses.
Wall suggested that although some businesses could raise wages and not raise the costs of their products, many businesses would be forced to raise prices and consumers would have to pay for most increases in wages. Because the poor are also consumers, he said that increased prices most affect the poor.
Rafanan said even if that was the case, “An extra 25 cents on every McDonald’s visit will pay a living wage and benefits to all McDonald’s workers,” and said he’d gladly pay a little extra to provide help for so many.
Will it help our economy?
The final issue discussed was the effect on the overall economy. In San Francisco the minimum wage was raised to $10.74 but has seen virtually no effects on unemployment. Wall agreed that employment numbers may not take a big hit if wages were raised. However, he says there would be a redistribution of jobs where the higher skilled workers benefit and the lower skilled workers, many of whom are in poverty, lose out.
Rafanan said the distribution of those jobs wasn’t clear, but “what is absolutely clear is a dollar more increase in the minimum wage puts another $2,800 in the pocket of a person who is a low-wage worker.”
Sommers and Rafanan both emphasized all that money would go back into the economy as most of the low-paid workers they spent time with still need money to buy necessities.
There will be continued debate on the effects of a raise in minimum wage, but Rafanan said as far as public opinion goes, most want to see wages raised. “72 percent of Americans want to see the minimum wage increased and 48 percent of those folks are Republicans, so this thing is bipartisan and across the board,” said Rafanan.
Editor's note: Chris Sommers is a member of the Friends of St. Louis Public Radio board. Don Marsh mentions Missouri’s minimum wage as $7.35, but it was raised in January to $7.50.