Let us begin with a brief history lesson. In 1938, Congress passed a historic act that established a mandatory federal minimum wage. This act included, among other things, creating the standard work day and week, banning child labor, and instituting overtime pay. This was called the Fair Labor Standards Act (FLSA).
Over the last 83 years, the FLSA has been amended multiple times to raise the minimum wage and clarify its coverage of workers that make tips, as well as disabled workers. But did you know that the federal minimum wage has not been updated since 2009, when it was increased to $7.25? As the world continues to move forward and inflation spirals completely out of control, it feels (to some) like our minimum wage has gotten stuck in the dark ages. Twenty-nine states have taken control of this by declaring their own mandatory minimum wages. These minimums range anywhere from $8.75-$13.50.
Yet 21 states still abide by the federal minimum and are not required to pay their employees any more than $7.25 per hour. This has sparked a great debate throughout our country, with economists on both sides of the issue claiming that a rise to a $15 an hour wage will either harm or help our nation in the long run.
As the price of gas, rent, food, commodities and utilities continue to rapidly rise, what would have been a decent, livable salary just ten years ago, now feels like it barely affords enough to scrape by.
The Value of the Dollar
If you want an accurate look at the decreasing value of the dollar over time, go play around with the Consumer Price Index Calculator. You can hop on there and see what the buying power would have been for a certain dollar amount in the past. I calculated the weekly paycheck for 40 hours a week at the federal minimum wage and then input it to find out its buying power in 2009. A weekly income of $290 had the buying power of $368.34 in 2009. That means that the value of our paychecks has decreased by almost 30% over the last 12 years, while the cost of everything else continues to increase. If you really want to have your mind blown, go see how much $290 was worth in 1921!
The Impact of Minimum Wage
Understanding the impact of minimum wage is far from straightforward. The federal minimum in America isn’t tied to inflation. Over time, it has lost its value as costs continue to skyrocket. The issue with the debate at hand is that it should be empirical and not theoretical. Yet, many studies are done based on economic theory and not empirical data. There are many factors to keep in mind when looking at the data. What job sector are you talking about? How easily can the employee be replaced by a machine? What is the profit margin of the employer?
The minimum wage issue has very little impact on highly skilled job sectors. When we think about the potential benefits of raising the minimum, we are thinking about its effect on younger employees or people that do not have specified training or skill sets. Because of this, we want to be cognizant of how increasing the minimum wage too quickly could actually cause job loss or reduced hours. The Congressional Budget Office found, in a recent study, that a $15 an hour minimum wage could reduce employment opportunities by over 1 million jobs. While there will still be many positive outcomes, such as lifting people out of poverty, the negative impact of this could be difficult for less-skilled employees as well as small business owners nationwide.
Often cited as an argument for a $15 minimum wage is the Card and Krueger study of 1992. Notable economists David Card and Alan Krueger studied the outcome of a minimum wage hike in New Jersey while none was instituted in Pennsylvania. They concluded that there was no job loss, as initially predicted by economists discussing the dangers of raising the minimum wage. I find it very important to point out that their study was composed almost entirely of fast-food chain restaurants. Because of this, it does not necessarily accurately represent the outcome of an increase of minimum wage on small businesses.
Being a large national chain often provides opportunities to offer higher pay and more benefits, without creating an unsustainable business model that will lead to bankruptcy. Yet if you take a small business with low profit margins and expect them to be able to keep the same standards of pay for their employees that large, highly profitable chains are able to maintain, you end up driving small businesses to close while increasing the presence of large monopolies such as Amazon and Walmart. Big business often has access to tax loopholes and dirt cheap manufacturing and overseas labor that make it easy for them to begin to offer their employees more. Small, family owned businesses tend to have higher costs and smaller margins that make it impossible for them to maintain their employees’ hours if they are forced to increase their wages when their bottom line cannot sustain it.
The other thing to consider is that many businesses during the pandemic were (and still are) struggling to keep their doors open. The idea of a minimum wage increase could be the final straw for small businesses that are just trying to stay afloat.
Where Do We Go From Here?
As the debate rages on, I think it is important that we pay attention to the nuance of this issue. I think it is universally agreed that people should be paid a living wage. I don’t know a single person that believes that it is ok for an individual to work hard and show up for a full time job while receiving a paycheck that cannot even afford them basic necessities. The issue continues to be: can we sustain more than doubling the mandatory minimum wage? Do we want to create an environment where large business can continue to put small companies out of business? How can we make sure that people are making fair, living wages and keep the lights on for the entrepreneurs of America? The number one thing to do would be to vote with your dollar. Whenever possible, if you can choose small business over a large corporation, you will be helping to fund a business that can fairly compensate the people who work for them. By doing this you will help to create more jobs with better wages and working conditions. Instead of Amazon for your holiday gifts, choose a creator on Etsy. Instead of Walmart for your groceries, try to find a small, local farmer’s market. It certainly is less convenient and takes more time, but voting with our dollar can be just as effective as exercising our voting rights in the booth. Personally, I am fully behind raising the federal minimum. I just want to make sure that we do it in a way where the small businesses can survive and thrive. By doing that, we help support our local communities and economies in an incredible way that will benefit us and future generations.