The issue of poverty and a livable federal minimum wage has been thrust into spotlight recently, not just by President Barack Obama’s call to action but by a series of protests by minimum-wage workers. Employees at McDonald’s (NYSE:MCD), Wal-Mart (NYSE:WMT), Yum! Brands (NYSE:YUM), Sears (NASDAQ:SHLD), Wendy’s (NYSE:WEN), and others have walked off the job and taken to the streets on multiple occasions in protest, seeking higher wages, benefits, and a better work environment.
One of the largest protests to date is scheduled to take place Thursday in 50 cities across the U.S. The protests are being organized by a coalition of groups including Fast Food Forward, a “movement of NYC fast food workers to raise wages and gain rights at work.”
In nominal terms, the minimum wage has never been higher. Since 1938, the federal nominal statutory minimum wage has increased steadily, hitting $7.25 per hour in 2009. The problem with this wage is that someone working full time for $7.25 falls below the poverty threshold. Even at $9 per hour, the average hourly earnings of someone in the fast-food industry, workers take home about $18,500 per year.
The National Poverty Center reports that in 2010, 15.1 percent of all people in the U.S. lived in poverty — the highest level since 1993. The rate has increased fairly dramatically since 2000, when it was 11.3 percent. Here are the 2010 poverty thresholds as set out by the U.S. Census Bureau:
2010 Poverty Thresholds, Selected Family Types
|Single Individual||Under 65 years||$ 11,344|
|65 years & older||$ 10,458|
|Single Parent||One child||$ 15,030|
|Two children||$ 17,568|
|Two Adults||No children||$ 14,602|
|One child||$ 17,552|
|Two children||$ 22,113|
|Three children||$ 26,023|
According to a report conducted by the Congressional Research Service: “The peak value of the minimum wage in real terms was reached in 1968. To equal the purchasing power of the minimum wage in 1968 ($10.70), the current minimum wage’s real value ($7.90) would have to be $2.80 (or 26%) higher. Although the nominal value of the minimum wage was increased by $5.65 (from $1.60 to $7.25) between 1968 and 2009, these legislated adjustments did not enable the minimum wage to keep pace with the increase in consumer prices, so the real minimum wage fell.”
On the other side of the fence, employers and business organizations have pushed back against minimum wage advocates.
“The restaurant industry is dominated by small businesses,” National Restaurant Association member Melvin Sickler said when he testified before Congress in March. “More than seven in 10 eating and drinking establishments are single-unit operations.” Sickler, who owns several Auntie Anne’s Pretzels and Cinnabon franchises, was testifying before the U.S. Senate Health, Education, Labor, and Pensions committee in regard to a proposed piece of legislation that would have increased the federal minimum wage from $7.25 per hour to $10.10 per hour.
Critics of the increased minimum wage argue that such a move would actually have a net negative impact on the economy because many minimum wage employers — like those in the restaurant business — operate on thin margins. Increasing the minimum wage would therefore force layoffs and salary reductions, curb business growth, and possibly lead to higher prices for consumers.
“Food and labor costs are the two most significant line items for a restaurant,” Sickler said. “With average pretax margins of roughly 4 to 6 percent, increases in food and labor costs can have a dramatic impact on a restaurant’s bottom line. Only a small minority of restaurants will be able to handle a 39 percent minimum wage increase without taking actions that will harm workers.”
In 1938 — when Franklin Roosevelt was president of the United States — Congress passed the Fair Labor Standards Act. FLSA is the federal statute that establishes an eight-hour workday, a 44-hour, seven day workweek, minimum wage, time-and-a-half overtime, and barred the employment of minors. Next to the Social Security Act, President Roosevelt considered FLSA the “most important Act that has been passed in the last two to three years.”
The act, which takes shelter under the umbrella of New Deal legislation that was championed by FDR, established a statutory federal minimum wage of 25 cents per hour in nominal dollars, or $4.07 in May 2013 dollars. The legislation affected approximately 700,000 workers and set the foundation for what many consider today to be an unquestionable principle.
As Obama put it in his 2013 State of the Union Address, that principle is that “in the wealthiest nation on Earth, no one who works full-time should have to live in poverty.”