The Wrongologist

What’s Wrong Today:

We
have become a low-growth economy. Republicans have to answer why
“growth policies” (that have directly increased inequality), did not
also provide the promised payback of increased growth for all. Particularly in
the minimum wage.

As Mr.
Obama and others have
noted, a parent who works full-time, year round at the federal minimum wage
does not earn an income above the federal poverty line.

This wasn’t always
the case. Up until the early 1980s, an annual minimum-wage income—after
adjusting for inflation—was enough to keep a family of two above the poverty
line. At its high point in 1968, the minimum wage was high enough for a family
of three to be above the poverty line with the earnings of a full-time worker,
although it still fell short for a family of four. Today, at the federal
minimum wage of $7.25 per hour, working 40 hours per week, 52 weeks per year
yields an annual income of only $15,080. As shown in this chart from EPI,
this is below the federal poverty line for families of two or more.

For some
context, median individual earnings are $40,404 a year, according to the BLS, while the US
poverty level is $23,656, according to HHS.
Full-time minimum wage earners make 62.7% less than median income and are 36%
below the poverty level.
According to Barry
Ritholtz:

As Bloomberg
Businessweek reported earlier this year, net total public assistance to the fast-food industry is about $7
billion dollars. (This does not include future medical costs associated
with diabetes or heart disease). If the minimum wage were suddenly raised
to $15, it would drive fast-food prices 25% higher, adding $1 to the cost of a Big Mac.

And employees
of the fast food industry receive more taxpayer aid than any other sector. How
much? More than half (52%) of the families of fast-food workers receive some
form of public assistance. That’s more than double the rate of the workforce as
a whole. Most of it is through Medicaid and the Children’s Health Insurance
Program ($4 billion), while the Earned Income Tax Credit, food stamps, and
Temporary Assistance for Needy Families program are the rest ($3 billion).

So, let’s
consider the options: we can continue to provide SNAP
(food stamp) assistance, SCHIP, and the
Earned Income Tax Credit
(EITC), subsidizing large and profitable companies with a significant slice of
our tax revenues, or we can raise the minimum wage, effectively shifting the
cost of poverty among the working poor from taxpayers to the corporations and
fast food consumers, where they belong. Why should taxpayers subsidize anyone’s Big Mac?

Do the
math: $7 billion in entitlements for two million fast-food workers (ignoring other minimum wage
earners for simplicity) would be the equivalent of $3.50 an hour. 7B/2M = $3,500,
$3,500/50 weeks (assuming that most of these jobs, if not all of them, are part
time) would be $70. $70/20 hour work week is $3.50. Adding $3.50 to the current
$7.25 would make the minimum wage $10.75.

Raising
the minimum wage to $10.75 should offset that $7 billion in federal expenditures.
If that was done, and the federal assistance programs were cut by a
corresponding $7B would make for a pretty good tradeoff.

And to Republicans: If the price of beef doubled, would we see the same hue and cry
about that cost versus increased wage cost? No one would care, the cost would be passed along. But if we were
to double wages, Republicans, CEOs and pundits would tell us the sky is falling.

A Pew
Research Center survey
found that 71% of people favored an increase in the federal minimum to
$9.00/hour from $7.25. But while large majorities of Democrats (87%) and
independents (68%) said they favored such an increase, there are clear partisan
differences; Republicans were split, with 50% favoring an increase to 47%
opposed. (see chart below)

Nineteen
states (plus DC) have set their own, higher minimums, ranging from $7.35 in Missouri to $9.19 in
Washington State. Some cities and counties have gone even higher — San
Francisco’s minimum wage, for example, is set to rise 19 cents to $10.74 next
month. Those states collectively include 45%
of the nation’s working-age (16 and over.

Here is a view of
the minimum wage by state from The
Economist:

Source: The Economist

The proliferation of different state and
municipal minimum wages means that the federal rate covers fewer workers than
it once did. In 1979, 7.9% of workers were paid at or below the minimum wage,
while in 2012, 2.8% earned below minimum wage. Starting on January 1st
2014, 21 states will have a minimum
wage that is higher than the current federal minimum, but few will be
near the $15/hour that voters approved in SeaTac,
Washington. Nor will many be above the
federal minimum of $10.10 as Sen. Tom Harkin (D-IA) and Rep.
George Miller (D-CA) have proposed.

Jobs are the answer to better GDP
growth and reduced income inequality, but ONLY if the jobs produce enough income so that
the person doing the work can afford the other necessities that go along with a
sustaining lifestyle, with minimal contribution from the social safety net by
federal or state programs.  

This all
adds up to why the minimum wage must be increased.