If businesses don’t pay employees a living wage, what happens?
As the minimum wage debate gridlocks in Albany (check out Karen DeWitt’s latest update here) I stumbled across two arguments that seemed to get at the heart of the stand-off.
Five reasons why not from Unshackle Upstate (click to enlarge)
The first, from the group Unshackle Upstate, argues that a hike in New York’s minimum wage would slam small businesses, forcing many to close, lay off workers, or move out of state.
“New York will maintain its reputation as being anti-business,” the group argues.
Fair enough. I know a lot of small business owners who haven’t been doing all that well lately.
The idea of forcing them to increase their salary costs in this tough economy seems pretty sketchy.
But on the other side of the equation is the often overlooked fact that 84% of New Yorkers who earn minimum wage aren’t kids.
This debate really isn’t about college students or high schoolers earning a few bucks on the side.
That argument, made all too often by opponents of a minimum wage hike, is a cop-out.
It doesn’t confront the deep poverty that comes with earning $7.25 an hour.
So as we make this decision, Albany lawmakers and advocates on both sides should confront honestly what happens when businesses can’t or won’t pay their employees a living wage.
Many of those workers — even those employed full time — will wind up falling back upon government services, relying on taxpayers for everything from rent support to medical care to food.
That may well be a reasonable role for the government to play. But it strikes me that there might be a more reasonable way to approach this.
Rather than allow workers and their families to fall first into abject poverty, before we ask Albany to step in, perhaps the state should offer some kind of wage supports to the employees of companies that a) can demonstrate an inability to pay living wages, and b) can show that their workers are grown-ups, not teenagers.
The truth is that as long as American workers can put in a 40 hour work week and still not earn enough to pay for basic necessities, someone’s going to have to foot the bill to stave off unacceptable levels of poverty.
(I think it’s safe to say that no one wants a return to the days of tenements, widespread hunger, infant mortality, and so on.)
So if the answer isn’t to require higher minimum wages, then we should begin looking for smarter approaches to helping the fully-employed poor.
There is a widely-used program that already exists that does just what you are proposing here: the Earned Income Tax Credit, available only to adults (people between the ages of 25 to 64) who work at low wage jobs.
Both the federal government and New York have this tax credit – NY pays 30% of the federal credit.
The program gives little help to single workers – the credit amount is low, and phases out quickly. The top credit for a single worker would be $464 federal + $139 NY, but that starts phasing out at $7,500 in wages, which is about 20 hours per week at minimum wage. A single adult working full-time at minimum age would make too much money to qualify for th EITC.
People with children, however, receive a benefit that is high enough to lift them over the poverty line. A single parent with 3 kids working full time at the minimum wage ($14,500/year) would receive a tax credit of $5,751 federal + $1,725 NY, and a husband and wife with 3 kids, both working at the minimum wage ($29,000), would receive $4,234 federal + $1,270 NY.
The EITC was a Republican idea, instituted by Presidents Ford and Reagan. It is designed to reward people for working at low income jobs and to offset the effects of payroll taxes (Social Security & Medicare) on the incomes of low-income workers. It is also put forward as an alternative to the minimum wage.
My comments on the program: fully employed single people would benefit from an expansion of this credit if it is used in place of increases in the minimum wage to raise low-income workers out of poverty – income eligibility and credit amounts could be increased for these workers. People would also benefit if the option to receive part of the credit as a supplement to wages was reinstituted. This used to be an option, but now people can only receive this credit as a lump sum payment at tax time.
How many jobs are out there paying only minimum wage? What is the type of work and who are working those jobs? Is there a geographic difference in where the minimum wage jobs are located?
A high minimum wage may feel good, but it puts more people out of work.
The smarter way is for the worker to work hard and earn a higher pay through effort and improvement.
JDM –
What you’re saying just doesn’t make sense.
Even if one cadre of workers moves up the ladder and finds better jobs, you will still have the same number of workers replacing them in minimum wage jobs, a new cadre who can’t afford basic necessities.
According to one survey I found, there are currently 54,000 adults in New York City alone earning minimum wage in full-time jobs.
It’s also worth pointing out that as our economy shifts toward service work, more and more positions that are available are at or near the minimum wage.
So it’s likely that the number of adults in this situation will continue to grow.
–Brian, NCPR
Brian said: “(I think it’s safe to say that no one wants a return to the days of tenements, widespread hunger, infant mortality, and so on.)”
I’m not sure that is safe to say, given the policy decisions we’re making.
Here are some data germane to JDM’s point: http://www.cepr.net/index.php/press-releases/press-releases/the-impact-of-city-specific-minimum-wage-standards
Brian Mann:
Think about what you just said. You would have upward mobility, and new workers coming in.
The cycle would repeat ad infinitum.
But, if you still don’t think so, here’s an alternative. Start paying everyone $1 more per hour, each year, every year.
If it’s such a good idea, why wait for the government to tell you to do it?
(now I will answer my own question: you’d end up laying off people, that’s why)
JDM – “you’d end up laying off people, that’s why” – or maybe you’d have people with income enough to invest in creating small businesses and buying more goods and services and your business would improve, especially in local communities.
“If businesses don’t pay employees a living wage, what happens?”
Wrong question!! You are asking “business” to assume moral responsibility for what is in reality an economic issue.
“If businesses are forced to pay employees a living wage, what happens?”
In most instances a small business is forced to either cut positions or fold, neither of which helps anyone.
Brian, rather than debating with JDM, you might want to address Anita’s point, that this the problem has been substantially addressed through the EITC.
Are there studies that accurately show how minimum wage workers fare after ongoing government programs like EITC and Medicaid are factored in?
I’m also wondering about how many minimum wage workers are also in the “tipping” economy, and actually make a lot more (mostly unreported) income.
Poorer people who have more money spend more money. They don’t save it. They don’t invest it in India or China. They spend it locally at the grocery store or mall. Because they spend more money, it creates more demand which helps employment. Poorer people who are paid a living wage also use less in the way of taxpayer funded social programs.
Maybe this special interest group can help the economy by hiring a copy editor. One doesn’t hire “less people.” One hires fewer people.
But I guess this ignorance is probably the result of state education cuts… demanded in the name of “lower taxes” by Unshackle. Maybe they can explain how ignorance improves NYS’ competitiveness.
JDM, Past increases in minimum wage did not result in the layoffs of significant numbers of workers. The article that oa refers us to bears that out and so did my experience working in unemployment insurance during previous increases in the minimum wage. We didn’t see anyone coming in to file for UI because the minimum wage went up and they lost their job. What you are saying is one of those “things you know that just ain’t so”.
Another thought from my UI days: We called UI benefits ‘high velocity dollars’ because the people getting that money spent it, immediately. They are living on the edge. They can’t afford savings or investments. They need to money to pay bills and buy necessities. The same is true of increases in minimum wage. An extra 75 cents to a dollar is going to be spent very quickly and add to economic growth.
The economy grows when money moves through the economy. One of the problems of the current economy is that money accumulates in the hands of a few who then hold onto it waiting for the economy to improve. As long as they continue to sit on it, it will be a long wait.
John Warren: Like I said, no one is “stopping” anyone from paying minimum wagers more money.
If you think that is what we need, by all means, do it.
I am for paying more money commensurate with individual effort and drive. If minimum wagers see that hard work is rewarded with more pay, they will work harder to get more pay.
If minimum wagers are told that the government will force their employer to pay them more regardless of their effort, they will be motivated not to work harder.
Welcome to the fallen world of human beings.
Knuck asked: “How many jobs are out there paying only minimum wage?… Is there a geographic difference in where the minimum wage jobs are located?
Here’s how many and where by North Country county from today’s Fiscal Policy Institute report.
http://www.fiscalpolicy.org/FPI-county-by-county-impact-of-raising-min-wage.pdf
Numbers are for workers now making either minimum wage, or less than minimum wage would be, if raised by the proposed amount:
Clinton 4,100, Essex 2,000, Franklin 2,400, Hamilton 300, Herkimer 3,200, Jefferson 5,000, Lewis 1,200, St. Lawrence 5,200, Warren: 3,800, Washington 3,000.
This number of workers is between 10 and 12.5% of the total workforce, depending on county. With the NYS average at 10.1%, low-wage workers make up a larger proportion of the North Country workforce.
Dale Hobson, NCPR
Minimum wage is called ‘minimum’ because it pays just enough to subsist on.
Only a callous person would demand that employees show more ‘effort and drive’ to be ‘rewarded’ with what has legally been determined to be the threshold level for financial survival in NYS.
JDM, you’re confusing minimum wage with incentives for performance that goes beyond the minimum.
No one in their right mind should think of the minimum wage as a guarantee of subsistence. The Minimum Wage, like Social Security, was originally conceived as a safety net for the working poor. Again like Social Security, it is now seen as a government guarantee of a certain standard of living. It ought to be an incentive to improve one’s situation. Additionally, minimum wage laws can be viewed as contributing to unemployment. It’s all about supply and demand; fooling with that is asking for trouble.
Terence once again shows he cannot participate in the arena of ideas without name calling.
Terence. People have ideas different from yours and that doesn’t make them callous. Get used to it.
New York State legislatures can “set” a poverty limit. But there are people who live “happy” lives below it. For example, there are many well-educated, industrious people living a self-sufficient life-style.
Please don’t resort to name-calling. It’s unbecoming. Think of all the universe of ideas that are out there, and expand your horizons.
Brian Mann said:
(I think it’s safe to say that no one wants a return to the days of tenements, widespread hunger, infant mortality, and so on.)
Brian, the other day you implied that conservatives would be OK with that. Were you serious or was it just another gratuitous comment?
“Minimum wage is called ‘minimum’ because it pays just enough to subsist on.”
Or, as is the case now, less than is needed to subsist on. That’s why so many people working minimum wage jobs have two or three of them. But hey, at least that helps employment numbers to bolster Unshackle’s rhetorical agenda. Doesn’t really help working human beings though.
Larry: the scenario Brian M. describes is what would happen if conservative economic policies were taken to their logical conclusion. Whether they would want it or not, this is what would happen if economic conservatives got everything they wanted policy wise.
I think a good solution is wage subsidies. Some other countries use these successfully.
For adult workers who are working in lower wage jobs particularly minimum wage jobs, the government would subsidize the wage (the EIC was mentioned above and this would simply be an expansion of that concept but tied more directly to work itself).
This is a concept that supports work, supports business and helps people not use other government services.
What is “hardworking”?
The minimum wage has a distortion effect, you are basically punishing employers who simply don’t have enough revenue to pay anything more. There is no doubt that a minimum wage would force many of these businesses to simply hire fewer people. But a wage subsidy would not have that impact.
JDM you seem to believe (not wanting to put words in your mouth) that hard work is rewarded with more pay. Is that true? What if someone is working as hard(whatever that means) as ANYONE, even the owner of the company, could possibly work. But they are not seeing any more pay? What do you thing that would or should motivate them to do? Is it all Skinner to you?
Hard work does not ALWAYS lead to higher pay. In my experience, it more often does than not.
One need combine being a good worker with being a good employee to better ones chances for higher pay and longevity. If the incentive of higher pay for good performance is removed, a tendency to strive for mediocrity will develop.
zeke: it my observations, if a good worker works hard, and doesn’t get rewarded, he or she goes out and starts their own business and does well.
That’s what’s great about our country.
The only thing not great are those who keep trying to stick their hands in other people’s pockets instead of trying to achieve greatness through their own effort.
Zeke asks “What is hard working?”
Evidently, if you are in a minimum wage job, some think that means you are not hard working.
If a good worker works hard and doesn’t get ‘rewarded’ (AKA paid a living wage), my observations tell me that they generally succumb to structural pressures that are much stronger than most individuals.
Health problems wipe out their meager savings, their children don’t get proper clothing or the extras that give them a leg up in life. Such people generally have to rent in less desirable areas, which leads to stigma, and so on.
It may very well be true that a few individuals have the gumption and sheer luck to rise above it and prosper, but the vast majority of the working poor will remain that way for life — through very little fault of their own. We are not running an experiment in social darwinism here: people deserve a decent minimum wage and health and safety in the workplace.
And my observations are based on years and years of working with lower-income families in the courts. Your observations, JDM, sound more like wishful thinking.
The point here is that as a society we have (rightly) decided that it is not ok for people to be destitute. It is not good for them, it is not good for our economy. This is a no brainer.
So, accepting that point… we can help people avoid destitution in one of two ways. Pay them a living wage for the work they do, or provide for them via social programs. Either way, society is paying.
I would think those of you on the far right who hate social programs… which you derisively refer to as “hand outs” and “free rides”… would be more in favor of the living wage as a means of helping those in need. At least they would remain in the work force, earning their “hand outs” to some degree. No?
I don’t think people on the right “hate social programs” I think they do not feeel there is (or ever can be) enough oversight to eliminate the fraud waste and abuse.
Market forces will play an important part in setting a “minimum” wage.
There is a point where no one will do a job for a given price-per-hour.
OK, Zeke, but why don’t the people on the right get excited about all of the vast waste, fraud and abuse in no-bid military contracts, unneeded subsidies for big business, and privatization that results in higher costs? It seems that it’s only waste, fraud and abuse to poor people that gets the right excited.
Walker: you hit the nail right on the head. It’s not just the money the far right are objecting to here: there’s a hidden disgust and anger at the poor.
The same argument of ‘It’s bad for business’ has been hauled out every time the state has ‘meddled’ in the free market. (Which is never free, by the way: everything has a cost.)
This is from the other thread but it relates. Programs for the poor, food stamps, TANF, HEAP, and even Medicaid are a small percentage of our federal budget and do NOT have a large impact on our deficit. Four things make up our deficit-Military-Social Security-Medicare-Interest on the Debt.
You have to attack those things and you have to start with the military complex. Building f-22’s are no different than handing those guys food stamps, at least food stamps provides income for farmers and feeds someone, f-22′ are not needed and don’t do anything. Just one example.
The minimum wage issue is not a budget issue however.
JDM said: “it my observations, if a good worker works hard, and doesn’t get rewarded, he or she goes out and starts their own business and does well.”
What color is the sky in your world? I would like to move there. Seriously, have you ever worked in the private sector? Hard work, very often, is not the thing that gets rewarded. You need only look at the Facebook IPO shenanigans to see that.
president obama, speaking about mitt romney:
i think obama is far more in touch with things than the likes of jdm.
Building f-22’s are no different than handing those guys food stamps…..
Not quite. The guys building F-22 are good, hard working, god-fearing ‘mericans. Those “other” people getting food stamps – not so much.
There is another major difference between buying more F-22s and giving money to the poor: a substantial chunk of the money spent on an F-22 will go to the CEO of the company that builds it, not to the workers. As someone else pointed out, money given to people who really need it right now will get spent right now on food, on rent, on clothing. Those expenditures will pay salaries of other workers– clerks, farmers, etc. Money that goes to a fat-cat CEO get spent, often as not, in other countries, on “investments” like hedge funds, in any number of ways that are less productive for the people of this nation. And what do we really need one more multi-million dollar killing machine for?
I was extreme in my comment to make a point. The people building f-22’s are some of the brightest engineers in the world, it is too bad they are spending their time building something that is not needed and is essentially a high dollar jobs program. Their may be spinoffs that can help the economy, but the price is a little high for spinoffs.
Government programs have a life of their own the inertia is huge once you start spending large amounts of money on things, they get an interest group to protect that money.
JDM: “Market forces will play an important part in setting a “minimum” wage.
There is a point where no one will do a job for a given price-per-hour.”
Correction; there is a point where no LEGAL worker will do the job for a given price-per-hour. I think we reached that point a number of years ago.
I had a job once where the boss had me doing masking and clean up work at job sites. I did a good job but noticed that other guys who did a lousy job were assigned to other work that lead to more skilled positions. I asked my boss why he kept me doing the lower skill work since I tried so hard to show him that I was willing to do a better job than others. He said it was because I did a good job at what other guys didn’t want to do and I didn’t complain about it.
Nobody had told me that if you didn’t want to do a particular job you should do it poorly.
khl: “Correction; there is a point where no LEGAL worker will do the job for a given price-per-hour.”
I wasn’t going there, but you do make a good point.
The farmers that I know in my area that employ workers-of-questionable-legality, pay more than minimum wage. The w-o-q-l work hard, and typically 12-14 hour days.
The farmers cannot find any locals who will 1) do the work, even above minimum wage, and 2) work 12-14 days at farm work (can we agree it’s “hard” work?)
It’s not that their working for sub-minimum rates. Market forces require that farmers pay according to get the “better” w-o-q-l. Market forces at work even there.
spell check: “It’s not that they’re working”
Market forces have had their chance in our history. They did not solve these problems back then, so what makes you think they will solve them now?
dave: “They did not solve these problems back then”
You could say that minimum wage hasn’t solved our problems, either.
i.e. we’re talking about the working poor, aren’t we? and we’ve had a minimum wage for half a century.
To say that market forces didn’t work is too broad of a brush. There were identifiable moments when correction was needed. The minimum wage enactment apparently hasn’t worked.
It’s like one person burning themselves on a cup of hot coffee, so we ban cups-of-hot-coffee, instead of giving the person with the burn proper medical attention.
If there are 23,900 minimum wage workers in this large area an increase in the minimum wage of $1/hr would equal an extra $956,000 moving through our economy per week.
It would cost employers something like $45 per week per minimum wage employee. My guess is that most of the businesses that employ people at minimum wage are likely to be the same types of businesses that benefit from poor people’s spending patterns.
$45/wk = $2,340/yr. So if 10% of those workers spend $1 extra per year in those employers businesses the wage increase is paid for. It is the other increases in cost that are much worse for businesses, like the increase in the cost of energy. $45 is about one tank of gasoline a week and you’re never getting that money back.
JDM is certain that if folks would just work harder and better they’d be rewarded with higher pay. He clearly believes that employers are good honest folk who readily reward good workers. In my early years I had a couple of employers that did that. I also had several more that just took advantage of my naivete. He also believes that there is some naturally occurring wage point that workers will never go below. Unfortunately neither is true.
Working for NYS DOL I saw numerous instances of employers of employers who did not fit JDM’s employer mold. I have also encountered numerous instances (both in my job and outside) where employers used all sorts of scams to get people to work for less or even free. Things like promising a job on the books after an “off the books trial” below minimum wage or even working for free while the applicant continued to get UI or welfare (while not reporting that they are working), or live off savings/parents/friends. Then they can them at the end of the trial and get someone else on the same basis. The most egregious was a guy who had someone working in his convenience store for less than minimum and no OT but claimed when caught that she was a volunteer. What she was was desperate. She accepted the deal thinking she’d just do it while looking for other work but he worked her such long hours (14/hr days 7 days/wk) that she had no time to look for a legit job. He basically suckered her into being a slave on the pretext of “helping her”.
I agree JDM that you see the world differently than I but I truly believe yours is a distorted view. Labor laws, including the minimum wage laws, are not targeted at those employers you think are the rule. They are targeted at those who take advantage of people with few options. The employers who operate the way you think all do would have no problem with an increased minimum wage because they are already paying more.
The most interesting and revealing comment is by Dale. Thanks for the shocking news.
But one thing I don’t see being mentioned here is the quality of the employer.
I heard on the news today where Costco has come out in favor of raising the minimum wage. A spokesperson for it said the company’s starting pay is $11 an hour and reasoned you need to pay decent wages to attract and retain decent workers.
What does paying only the minimum wage or even less say about the quality of the employer and their business model? If the minimum or less is all they can afford, maybe they should go out of business and go work for someone who knows how to run a business.
As an employer who has never paid anyone minimum wage (we require skills) I have a hard time fathoming how anyone can actually live on that. Our lowest wage is typically $10 per hr and I would not be comfortable paying any less than that. I would feel like I was stealing from someone. If you work hard for me I’ll be glad to pay. The problem I find with employees is that they are never satisfied with what they are paid. I’ve fired employees being paid $25 for abusing days off, leaving early, showing up late stealing tools, you name it. They say they want more money every time and think they are irreplaceable. They aren’t! During this tough economic time we have made work for our loyal employees, everyone else is unemployed.