Vijay K. Mathur
Most supporters believe that the federal minimum wage must be increased to close to $15 per hour. Sen. Bernie Sanders is an ardent proponent of increasing the minimum federal wage to $15 per hour by 2024 and indexing it to the median wage thereafter. According to the Bureau of Labor Statistics (April 2020), among 82.3 million (16 years and older) hourly paid workers (but not all workers), 392,000 earned the minimum federal hourly wage of $7.25 and 1.2 million earned lower than that wage in 2019. Hence, close to 1.6 million were paid the federal hourly minimum wage or less in 2019.
The usual argument against increasing the minimum wage, especially advocated by conservative politicians and others, is that the increase will result in unemployment of unskilled workers, teenagers and beginners in the labor market trying to gain work experience. The argument assumes a competitive labor market where workers and employers have the same bargaining power. The argument implies that given the demand and supply conditions in such a labor market, there will be excess supply of those who wish to work at the higher minimum wage than the quantity demanded. Workers most affected by the increase will be in industries such as leisure and hospitality, education and health care, and wholesale and retail that combined employed 79% of such workers in 2019.
However, the above argument against the increase misses some important counterpoints. The purchasing power of the minimum wage is 17% less than it was in 2009 (Economic Policy Institute, June 17, 2019). In addition, the wage has not been adjusted to the increase in productivity and/or technical change over a period of time. The resulting increase in demand for labor due to productivity gains would absorb the increase in the number of workers attracted by higher wage, hence no unemployment. In addition, labor economists have argued that when workers are paid a wage rate that they deem to be fair, they are more loyal to their employers (thus decreasing turnover cost), work hard and increase productivity. Thus, the increase in productivity, labor force participation and increases in consumption expenditures would increase economic growth.
Henry Ford introduced this idea of efficiency wage in January 1914 when he increased the wage of his plant’s male workers in Detroit to $5 per day for 8 hours a day of work from $2.34 for a 9-hour work day (for females in 1916). It increased productivity, loyalty and created a more stable workforce, thus decreasing turnover cost. It also made the plant workers economically better off, resulting in increased sales of Fords (www.history.com).
Empirical evidence also seems to support minimum wage increase. Studies by David Card and Alan Krueger in 1994 and 2000 showed that a minimum wage increase in a large sample of food establishments in New Jersey did not decrease employment, but showed some increase. The fear of large teenage employment decline is also unfounded, but benefits of wage increase are substantial. The EPI reports (February 2019) that a minimum hourly wage increase of $15 by 2024 will benefit 39.7 million workers. It will also increase consumption and address problems associated with high income inequality and the poverty rate.
It is apparent that a $15 minimum wage is not high enough at this time in the economy to result in an adverse effect on employment and/or inflation, but rather will result in more benefits to the economy and to those working at minimum- and lower-wage rates. President Theodore Roosevelt had the right idea when he remarked, “No man can be a good citizen unless he has a wage more than sufficient to cover the bare cost of living and hours of labor short enough so that after the day’s work is done, he will have time and energy to bear his share in the management of the community, to help in carrying the general load.”
Vijay Mathur is a former chairman and professor in the economics department at Cleveland State University, Cleveland, Ohio. He resides in Ogden.
No comments:
Post a Comment