Introduction to Minimum Wage History and Current Challenges
In 1938 during the Great Depression, President Roosevelt established The Fair Labor Standards Act of 1938, which introduced the federal minimum wage to the United States. It was introduced as a way to stabilize the post-depression economy and as a way to protect workers in the labor force by establishing a certain amount of pay. In the beginning, the minimum wage was $0.25 per hour and has been raised twenty-two times since. However, since the 1960’s there has been no adjustment for inflation and has remained $7.25 per hour since 2009. Americans are struggling to live off the minimum wage, and it is almost impossible for the workers to afford simple necessities, not to mention things like education and healthcare. While Americans are accustomed to having a minimum wage, the real value of these wages has sadly declined over time. For example, the minimum wage has not kept with inflation over the years and as a result, low-wage workers are not benefiting from economic growth and productivity that has been seen over the years. According to the Center for Economic Policy Research had the minimum wage kept with inflation and productivity increases it would be around $24 per hour (Baker). Although our economy would not be able to support this kind of increase even phased over a long time, it demonstrates that wages have not kept pace with productivity.
The American Dream and Minimum Wage: A Conflict
The belief in the American Dream holds a set of ideals in which freedom includes the opportunity for prosperity and success as well as upward social mobility for the individual, family, and children. This ideal is achieved through hard work in a society with very few barriers. However, the low-wage earners who do not receive a living wage, are unable to make any upward mobility. Which is in disagreement with the idea of the American Dream. These workers are some of the most hardworking employees, even when they desire to upgrade their skills, it is hard, they are caught up in a vicious cycle of poverty. While the topic of raising the minimum wage is a difficult and hot-button topic as of late, it does share many conflicting sides. The raising of the minimum wage would greatly benefit the nation as it needs desperately to find financial stability for all its citizens. By increasing the minimum wage, we are not only stimulating the economy by putting more money in the wallets of workers, but we will lessen the need for government assistance for many families and would encourage workers to be dedicated to their jobs.
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Economic and Social Benefits of Raising the Minimum Wage
First, raising the minimum wage will provide financial support for low-income families and help reduce poverty but minimize the social-economic imbalance between low and middle-income workers. As it stands today, an American under the age of 65 living in a one-person household working full time at $7.25 per hour will earn about $15,080 in a year. Though this is higher than the federal poverty level, $13,465; but is still below the current poverty level of $17,839, for a single-parent family with a child under 18 years of age (Census.gov). Through examining multiple scenarios members of the Congressional Budget Office concluded that an increase of $15 per hour by 2025 would increase the wages of 17 million workers who currently earn less than $15 per hour, and would increase an additional 10 million who make slightly more than $15 per hour. Which by 2025 would bring an estimated 1.3 million people above the poverty threshold (CBO).
There have been arguments that there has been wage growth among workers, however, the growth has largely has gone to those of the highest earners, that of the CEOs and management, not the front-line workers, who are the backbone of the working class. While there has been growth, mostly to the top earners, there still remains a significant gap between not only low and middle-income workers but amongst the races. Many economists believe that by increasing the minimum wage these gaps will reduce which is in support of raising the wage (Smith). Not only will increasing the minimum wage help those who are below the poverty line obtain their American Dream, but it will help decrease the gaps we see among different genders and races. A higher minimum wage reduces income inequality while providing an incentive to work. This incentive will make it better for society as a whole. By raising the minimum wage not only will individuals but families be able to achieve what they were working toward, but will improve their overall standard of living and provide them the means of handling any increases to the cost of living, that happen no matter what the minimum wage is.
Improving Employee Morale and Productivity Through Fair Wages
Secondly, increasing the minimum wage from $7.25 per hour to even $10 or $15 would reduce poverty but improve job satisfaction and would create stronger morale among employees and leadership. Many agree that if employees are properly compensated, both job satisfaction and overall morale in the workplace boots. Workers are less likely to leave to find other high-paying jobs, and are more confident and proud of what they produce, reducing turnover and expensive retraining costs. Not only would an increase benefit the worker but the business as well. This truly translates to employees are more willing to stay longer with a company, and possibly move upwards. Many argue that by increasing the minimum wage companies will have to lay off employees and increase prices, although it has historically been seen when these changes happen with short notice to companies this has been the case. When the increases are scheduled and implemented slowly consumers and the company has seen a smaller effect on prices and unemployment. When employee morale is high and productivity is increased the company witnessed higher profits from those employees. This benefits all levels of the company from the front-line worker to the CEO.
From my personal experience, when the company I work for began increasing the minimum wage, they did so slowly and will have everyone up to $15 per hour in the next two years. While those who were below the thresh hold were given larger increases there were increases from the least paid to those who had already topped out at the top of the pay scale. People who hadn’t seen raises were now seeing them and that certainly increased not only low morale but also employee productivity. People were happy and were willing to come to work because they were properly being compensated. Although these are intangible benefits to increasing the minimum wage, they go a far distance in creating revenue for companies.
Economic Growth and Reduced Government Welfare with Higher Wages
Lastly and most importantly, by raising the minimum wage the economy would see an increase as well as see a decrease in government-sponsored welfare spending. Though many are fearful an increase in wages would increase the prices of goods and services as companies pass the increase onto the consumer, which would not benefit the economy, many don’t believe it will be enough for consumers to feel it. Daniel Kuehn, a research associate at The Urban Institute, stated: “A wage hike might raise prices of goods and services, but the increases will be spread out among many consumers” (Smith, 2021). Historically, consumer spending increases when wages increase. A higher minimum wage would put more dollars in the pockets of millions of workers, which they then turn around and pour into retailers and other businesses. This not only increases the demand for goods and services but increases business revenue as well. When there is a rise in demand consequently there rise in the need for workers, so an increase in wages would in the long run create more jobs.
Not only will an increase boost the economy, but it’s also believed that if low-income workers earned more, they would no longer be dependent on or even eligible for government assistance. The fewer people eligible or dependent on the government programs would cause the spending on government benefits to decrease. According to the Center of American Progress, a 10% increase in wages would reduce SNAP enrollments by between 7.5% and 8.7% or 3.1 million to 3.6 million people. The total annual decrease in the program would be nearly $4.6 billion, or about 6% of current expenses (West and Reich, 2014). Though many will still argue that raising the minimum wage won’t alleviate poverty and government welfare spending completely, it will help millions in the end and lower the amount the country spending on these programs. By reducing government spending on public assistance, there would be billions available for improvements and other programs available annually. Statistically, for every $1 that wages increase among low-workers who rely on public government assistance, government spending falls roughly by $5.2 billion (Cooper, 2016).
Even if many are in favor of increasing the minimum wage of $7.25 many are not sold on the $15 per hour offer. A major debate concerning the raising of the minimum wage is the misconception it will be disastrous for everyone, from the employee to the CEO, but especially small business owners. I can certainly understand the fear they may have, but the larger corporations have not increased either. While many consequences can’t be foreseen, many states have already increased to $15 per hour and are reaping the benefits, from corporations profiting to employee retention increasing. If looking state to state does not convince you that the minimum wage is needed to be increased, as many as above the minimum and are closing in on the $15 per hour. The United States has the lowered minimum wage, while still having a higher cost of living them other developed countries that have a minimum wage. While we stand at $7.25 per hour other countries like the United Kingdom, Australia, and other European Union Counties are roughly the equivalent of $10.7-15.84 per hour USD.
Conclusion: The Path Forward for Minimum Wage Policy
As one can see, increasing the minimum wage will not only retain hardworking loyal employees but will improve morale, productivity, and job satisfaction, ultimately leading to economic prosperity, reducing poverty, and decreasing government welfare spending. It is the responsibility for our politicians, government officials, businesses, and managers to advocate for our workers so they can survive in today’s economy. Raising the minimum wage should not be are the argument of what may happen but rather what is morally right for the working class and less what the business owner feels. Whatever comes next for the federal minimum wage remains to be seen, but we now know if done slowly and properly instead of all at once we will see less effect on the consumer than before. For now, most Americans are in favor of an increase, and the battle continues for each side.
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