Minimum wage

For those of us who don’t earn “minimum wage”, there are a number of things we need to understand before arguing about what the minimum wage should be.

For starters, there are two (federal) minimum wages. There is the minimum wage for “normal” jobs, which is currently $7.25 per hour. Then there is the minimum wage for tipped employees, which is currently $2.13 per hour. Additionally, there are exempt employees. These include people work for businesses with less than half a million dollars of annual sales, seasonal amusement and recreational businesses, fisheries and small newspapers. It also tacitly includes “under the table” employees, which would be most people who work for cash.

Minimum wages vary from state to state, which makes sense, as the cost of living varies.

If that makes sense to you (which it should) you might ask “why is there a minimum wage at all?” States have seen fit to increase the minimum wage based on local conditions, why don’t workers just not work for less than they are worth?

The simplest, and truest, answer is that they don’t. Talented workers move on to better paying positions. This includes tipped employees, who in some instances (I can only speak about waitresses, I don’t know how it works for hairdressers and others) make hundreds of dollars an hour.

Market forces drive the actual minimum wage. An employer looking for better employees pays more. In most cases the federal minimum wage protects the very bottom of the employment barrel. When an employer chooses the lowest wage it will pay, that amount is the “minimum wage” for that company. When the president recently raised the minimum wage for government contractors to $10.00 per hour, it was an incredibly cynical and deceptive move. To start, it only applies to new contracts, but more to the point, there are precisely zero government contractors earning less than $10.00 per hour.

Who actually earns minimum wage? Approximately one and a half million workers. Another two million are tipped or exempt, making three and a half million people at or below minimum wage, which is 2.5% of all workers (1.5% of potential workforce). Put another way, the number of people who die from all causes each year is about two a half million people. If people who have died in the last year sounds like a small percentage of the population, it is more people than those who earned the federal minimum wage.

I separate the “below” group for another reason. When government officials talk about raising the minimum wage, they aren’t talking about those people who are exempt. Despite several increases in minimum wage, tipped employees haven’t had an increase in twenty years. In 1993 dollars, that $2.13 is worth $1.32. These people will not benefit from an increase in “minimum wage”.

I do agree that the federal minimum wage should be tied to inflation. Currently, the President is proposing a forty percent raise, from $7.25 to $10.10. You might think a 40% raise is due. The last time an increase in minimum wage was passed into law was…seven years ago. The percentage of increase at that time? Forty percent. From $5.15 to $7.25 in three steps.

One result of that pay raise was a ninety percent reduction in the number of people earning minimum wage. How that relates to the increase in unemployment in the sixteen to twenty four year old segment of the population (from 15% to 25%) can be debated by analysts, but there is no debate that the change had no effect on those earning less than minimum wage, other than increasing their number.

It appears that increasing minimum wage causes a decrease in minimum wage jobs, which is just so obvious I would prefer further research to prove if the relationship is actually causal and not just correlated.

It is quite clear that the number of people directly affected by an increase in minimum wage would be, in fact, minimal. There of course would be the ripple effect, those people who are currently slightly over minimum wage would receive an increase in pay to bring them to the new standard, and possibly greater responsibilities as their colleagues who were earning minimum wage are dismissed. In the short term, there will be an increase in the number of people earning minimum wage, which is bound to be uncomfortable for both employers and employees.

In the end, an enormous amount of political posturing, assigning of inappropriate stereotypes, and name calling will take place, which will benefit no one. Well, it will benefit the politicians who capitalize on “class warfare”, which oddly enough can take place even when the “classes” don’t exist anywhere other than in the minds of their misinformed followers.


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