Raising the Minimum Wage: Reality or Just a Pipe Dream?

Plant Money

Source: http://www.flickr.com/photos/76657755@N04/

If you worked 40 hours a week for 52 weeks (2,080 hours) while earning the federal minimum wage ($7.25 per hour), you would earn a pretax income of $15,080. Ignoring, for the moment, the zero vacation time, this wage is technically OK for a single adult: It’s a full 31 percent above the 2013 federal poverty guideline for a single-family household of $11,490. In this situation — in our model world, we are assuming things like no debt — this means that you are most likely earning a living wage. You can probably pay the bills, put a little money away, and live a decent but modest lifestyle.

If you are the only earner in a family of two, though, this is not-so-technically OK. The annual pretax income of someone working full time at the minimum wage is 2.8 percent below the poverty guideline for a two-person household of $15,510. In this situation, this means that you are probably not earning a living wage, and your cost of living probably exceeds yours income.

The real calculation is more nuanced than this, but at a glance, the general picture is clear: Those who earn the minimum wage walk the line between earning a poverty wage and a living wage.

If you ask around, most people will say that the living wage issue is a problem — a huge problem, even — and one that has been around as long as anyone can remember. The debate arguably began around 1912, when various states began enacting minimum wage laws that protected women and children. The laws were not necessarily meant to ensure equal pay but to establish some floor below which it was unacceptable to pay an employee. This floor would ostensibly help make sure employers were not taking advantage of their employees.

There was resistance to these laws from the very beginning, and by 1923, a lawsuit (Adkins v. Children’s Hospital) had made its way to the U.S. Supreme Court. The court wrote in its decision on the issue — in which it ultimately rejected the legality of the nascent minimum-wage laws — that it was authorized to ascertain and declare the following things: “[a], Standards of minimum wages for women in any occupation within the District of Columbia, and what wages are inadequate to supply the necessary cost of living to any such women workers to maintain them in good health and to protect their morals, and [b], standards of minimum wages for minors in any occupation within the District of Columbia, and what wages are unreasonably low for any such minor workers.”

The heart of the debate is a bit fluffy. Left to its own devices, the market seemed to pay some people wages that were unacceptably low, so some regulation appeared to be necessary. Local lawmakers took this into their own hands. Invariably, who gets to be the decider of what is unacceptable or not boils down to a power struggle between interested parties such as low-wage workers, business owners, and the policymakers who represent them both.

Policymakers took the initiative and ultimately won the ruling of the court. In its opinion, the court argued that it is impossible to calculate a true average cost of living, as “The amount will depend upon a variety of circumstances: the individual temperament, habits of thrift, care, ability to buy necessaries intelligently, and whether the woman live alone or with her family.” Female employees were in question at the time, but the point applies more broadly. (The court even stated as such later in its opinion by saying, “if women require a minimum wage to preserve their morals men require it to preserve their honesty.”)

The court concluded: “For these reasons, and others which might be stated, the inquiry in respect of the necessary cost of living and of the income necessary to preserve health and morals, presents an individual, and not a composite, question, and must be answered for each individual considered by herself, and not by a general formula prescribed by a statutory bureau.”

So it was a no-go on the minimum wage from the nation’s top court — but a lot can happen in 14 years. In 1937, the Supreme Court changed its tune and upheld the constitutionality of a minimum wage law passed in Washington state (West Coast Hotel Co. v. Parrish).

The court wrote:

“The exploitation of a class of workers who are in an unequal position with respect to bargaining power, and are thus relatively defenseless against the denial of a living wage, is not only detrimental to their health and wellbeing, but casts a direct burden for their support upon the community. What these workers lose in wages, the taxpayers are called upon to pay. The bare cost of living must be met. … The community is not bound to provide what is, in effect, a subsidy for unconscionable employers.”

The ruling helped pave the way for the Fair Labor Standards Act in 1938. FLSA is the federal statute that prohibits child labor, establishes a maximum 44 hour per seven-day workweek, and enacted a national minimum wage. The power of Congress to regulate employment conditions was upheld by the Supreme Court in 1941 (United States v. Darby Lumber Co.), and minimum wage laws have been the law of the land ever since.

The laws, though, are not undisputed. Many businesses and economists have long argued that wage controls do more harm than good and that unnecessary regulation of the labor market handicaps the market mechanism — echoing many of the same claims made in Adkins v. Children’s Hospital.

On the other side of the fence are low-wage workers and their advocates who argue that a) the minimum wage should be a living wage and b) the current minimum wage is not a living wage.

One of the more visible and vocal supporters of an increase in the minimum wage in the U.S. is Paul Krugman, a Nobel Prize-winning economist and a self-described liberal. Krugman wrote an op-ed for The New York Times published on December 1 in which he argued that contrary to the popular conservative argument, “we can raise the minimum wage.”

Krugman cites some labor-friendly studies, including one conducted by the Economic Policy Institute, a liberal think tank. The paper argues that increasing the minimum wage to a proposed $10.10 per hour and indexing it to inflation would have several major economic benefits.

The report finds that increasing the minimum wage would affect 30 million low-wage workers and — instead of destroying jobs — actually create as many as 140,000 new positions over a three-year phase-in period. The proposed increase would affect millions of low-earning American households, increasing the spending power of those who need it the most.

Krugman also argues that a minimum wage increase may have enough popular support to pass in today’s dense political climate. “An increase in the minimum wage, on the other hand, just might happen, thanks to overwhelming public support,” he writes. “This support doesn’t come just from Democrats or even independents; strong majorities of Republicans (57 percent) and self-identified conservatives (59 percent) favor an increase.”

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