Thursday, May 23, 2013
By allowing the minimum wage to remain at a nearly unlivable level, we have deemed certain jobs not worthy enough to meet even our country's minimum standard of living.
How have we been able to keep wages so low without significant social discord? By using tax revenue and a complicated government bureaucracy to subsidize low-wage employers and supplement minimum-wage salaries. Rather than firms paying a worker's true cost and customers paying an appropriate price for the services provided by those firms, the government provides workers with "income transfers" to help them meet basic needs. These include such programs as the earned income tax credit, food stamps and Medicaid.
These government supports mask a job's true value and set an artificially low wage. They also represent the height of inefficiency.
Raising the minimum wage means that the income required for basic needs is delivered in a one-step approach, via the paycheck directly from company to worker, rather than requiring additional government expenditures.
Beyond efficiency, there is also the matter of human dignity. Think about it: After a long day on the clock, you come home knowing that despite your hard work, you can't feed your family, cover their medical insurance or pay your rent without government support.
What message does that send about the dignity of your work and the pride of taking personal responsibility for your family?
Low wages push workers into shadow labor markets where they get paid under the table, avoid reporting income and evade tax responsibilities.
Artificially low wages teach workers that their work is not valuable -- a disastrous policy outcome.
In his State of the Union speech, President Barack Obama called for raising the minimum wage to $9 per hour. That would be a start toward restoring dignity and value to low-wage work, but it isn't enough.
We propose raising the minimum wage, in stages, to $12.50 per hour, an amount that would allow an individual supporting a family of three to live modestly, at about 138 percent of the federal poverty line. That level offers workers a way to escape poverty, a chance to feed their families, buy basic medical insurance and live in secure housing without significant government support.
The most common objection to raising the minimum wage is that it destroys jobs.
A slew of recent studies, however, have pointed out that although raising the minimum wage does increase earnings and reduce poverty, it has a limited, almost negligible, effect on employment. Studies also have illustrated that restoring the dignity of work through higher wages reduces worker turnover and increases productivity.
Some make the overstated claim that increasing the minimum wage would accelerate companies' off-shoring of jobs. Most low-wage jobs today are geographically fixed, however, or as economists call them, "nontradable." A janitor or home-care worker's job, for example, can't be outsourced to China.
What is sometimes understated is the likelihood of low-wage jobs being automated, a real and growing threat. If a small growth in the minimum wage is enough to move an industry to automation, however, it is likely that automation was coming in short order anyway. Technological progress is inevitable and further automation unavoidable.
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