Cases Against and For a $15 Minimum Wage

In 1933, Congress with the support of President Franklin Delano Roosevelt (FDR) passed a bill called National Industrial Recovery Act (NIRA) which instituted a broad swath of post-Depression labor protections including the first minimum wage of 25 cents per hour. His speech in support of this bill serves as perhaps the most quotable ethical foundation for movements in support of a higher minimum wage.

In my Inaugural I laid down the simple proposition that nobody is going to starve in this country. It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By “business” I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls; and by living wages I mean more than a bare subsistence level-I mean the wages of decent living.

The bill was overturned by the Supreme Court in 1935 when Schechter Poultry Corp v. United States suggested that enforcing a nationwide minimum wage was an example of the federal government overreaching its duty to regulate interstate commerce. It wasn’t until 1938 that FDR finally signed a permanent minimum wage into law with the Fair Labor Standards Act (FLSA) which, again, set the minimum wage at 25 cents per hour. This bill was much more shrewd than NIRA in that the prefatory material was dedicated to proving that the provisions contained therein would benefit interstate commerce by expanding business influence, unburdening the free flow of goods, regulating unfair cometitive practices, handling labor disputes, and unhampering fair marketing. Because of this move, we have had a federal minimum wage for 77 years now and the federal minimum wage, as of July 2009, sits at $7.25 per hour.

As a result of the Occupy Wall Street movement of 2011, major protests surrounding income inequality have sprung up periodically around the nation. An offshoot of Occupy called Fight for $15 took flight in late 2012 when employees of McDonald’s, Burger King, Wendy’s, Domino’s, Papa John’s, Kentucky Fried Chicken and Pizza Hut staged the largest strike in fast-food history in New York City. In time, employees from various industries staged similar protests with the desired result of establishing a living wage of $15 per hour for all workers.

This is where the discussion gets a little murky, because it is not always entirely clear what opposing parties mean when they refer to minimum wage or how they come by their calculations of an appropriate minimum wage. I want to attempt to provide some clarity for these two issues before moving on to cases against and for the establishment of a $15 per hour federal minimum wage.

Which Minimum Wage?

In the 1930s, FDR’s main issue with creating minimum wage ordinance in Washington, DC, was a question of jurisdiction. As we discussed earlier, his first bill (NIRA) was overruled because the Supreme Court did not think a minimum wage was the business of the federal government and his last bill (FLSA) was signed into law because he persuaded the people that it is. Few people I’ve spoken to know this, but at any given time up to three different minimum wage laws may be applicable to your current situation, one at the federal level, one at the state level, and at the city level. As such, the Fight for $15 is fought on many battlegrounds, in the private sector and also in the public sector, and also at federal, state, and municipal offices in the USA and across the globe.

Which Living Wage?

Though the minimum wage was originally established to approximate a living wage, much of the current protest surrounds the assertion that it is no longer a living wage. Tim Worstall of Forbes Magazine suggests that even $4.20 per hour, which FDR’s original 25 cent per hour minimum wage would amount to in 2015, could be considered a living wage due to the fact that 82.5% of the earth’s population gets by on even less than this. This rate doesn’t exactly factor into the current discussion.

Generally, discussion of a living wage centers around three sins of recent American economics: 1) the fact that the minimum wage has not kept pace with inflation, 2) the fact that the minimum wage has not kept pace with increases in productivity, and 3) the fact that the minimum wage has not kept pace with the cost of living. Though there are many measures that we can base a living wage on, there are a couple of commonly referenced metrics, the 1968 minimum wage of $1.60 per hour, the national median wage, and various national measures of the poverty line. The following figures represent a few different possible living wages and what calculations they are based on. They should be accurate within a few cents compared to any similar figures you come across.

$5.67, based on the cost of living calculated at 100% of the poverty level for a household size of 1 plus one penny (to represent the fact that we want to elevate people above poverty)

$8.55, based on the cost of living calculated at 1/2 of the national median wage

$10.85, based on the 1968 minimum wage adjusted for inflation

$11.67, based on the cost of living calculated at 100% of the poverty level for a household size of 4 plus one penny (to represent the fact that we want to elevate people above poverty)

$26.44, based on the 1968 minimum wage adjusted for both inflation and productivity, the latter using BLS Labor Productivity and Costs program (LPC) indices

I spent a lot of time trying to figure out exactly where the $15 per hour approximation of a living wage comes in, and I didn’t find it using any of these national measures. I would imagine the $15 figure was originally based on 1/2 of the median wage in New York City in 2012 but I don’t have the figures to back that up. The closest national measure I found was a cost of living estimate calculated at 133% of the poverty level for a family of four which comes out to $15.51 per hour. If we take Bernie Sanders as a source, the national $15 per hour rate is more than likely meant to be enough for a family of four to live above the poverty line which also finds a middle ground between the $10.56 and the $26.44 rates above. In other words, it is not based on any one specific value but intended to balance the need to keep up with inflation, productivity, and the cost of living for a family of four. Interestingly, if we are dealing with this issue at the state or municipal level, eight states — Alaska, Connecticut, Hawaii, Maryland, Massachusetts, New Hampshire, New Jersey, and Virginia — and District of Columbia would have a living wage higher than $15 per hour and over 100 cities would have a living wage of over $40 per hour if calculated at 1/2 of the applicable median wage.

The Case Against a $15 Minimum Wage

The drastic increase resulting in a $15 per hour national minimum wage is without precedent. In other words, nobody knows with any convincing degree of certainty what to expect. Even so, it is not unreasonable to believe some of the more dire economic predictions of lower profits, employment losses, substitution of automation for workers, higher prices, increased cost of living, and expedited inflation. On the flip side, we are about as close to universal approval of some kind of minimum wage hike as I’ve ever seen. The alternative needs to be a better solution to the problems of poverty and a declining middle class. The best approach is a multi-faceted approach based on good research. Rather than attempting to satisfy the confusing demands of inflation, productivity, and cost of living, we would need to pick one metric and stick with it. I think our best measure would be a modified inflation adjustment of the 1968 minimum wage. It was clearly the will of the people that this peak minimum wage (based on buying power) become law, so we should accept nothing less than an inflation-adjusted figure of $10.85. Additionally, it was the will of the people that this rate increase past the 1968 minimum wage. The minimum wage has changed seven times just since I was born in 1982. Since it would be impossible to make a clear adjustment for the intentions of the populace from 1968 to 2015, the round number of $12 per hour will suffice for our discussion. To minimize short-term job loss, the $12 minimum wage would be phased in over a period of three to five years and the final number would be indexed to increase with inflation so we don’t have to have this discussion again.

There are a couple of ways to tweak policy and turn this $12 federal minimum wage into a much higher effective wage. The first is to expand the Earned Income Tax Credit (EITC) and make it more accessible by implementing reforms to the IRS’s structure, politices, and procedures regarding the EITC. The second is to incentivize businesses to move toward full employment. Somewhere between 9 and 10% of Americans are currently looking to transition from part time employment to full time employment, so this would drastically change the economic outlook. I haven’t seen much research focusing on this metric, but for the sake of this proposal I would assume the main method of carrying this out would be to offer tax credits for meeting certain standards for full-time employment. Finally, since cities and states each have the ability to establish higher minimum wages than the federal minimum wage, there could be campaigns to persuade these bodies to set their minimum wage to approximately 1/2 the median wage in the area.

The Case For a $15 Minimum Wage

There are many economic factors that would be influenced by a change in the federal minimum wage, and all of them are connected to real, living people. This means that if you want a $15 per hour minimum wage to work, you just need to build up enough human capital to make it work. This is exactly what FDR was pushing for with his New Deal package of economic stimulus and social justice legislation. FDR knew that employers would increase their prices the moment they were required to pay their employees more, so he asked them simply to wait. What was on the line back then was the complete collapse of the United States economy, and people in the 30s knew what this was like. Those of voting age had all lived through the Great Depression, and few had thrived during that time. The parallels to our own experience of the Great Recession are uncanny. We find our unlikely FDR proxy in Donald Trump, who keeps saying, “American doesn’t win anymore.” Whereas FDR was attempting to establish the USA as a world power, Trump claims to be attempting to re-establish the USA as a world power. We would essentially be signing a contract. The workers would devote themselves to working full-time and not depending on government assistance, and in exchange they would get the highest wage of their lifetimes. The employers would devote themselves to restraining from raising prices and thus the cost of living for as long as they reasonably could, and in exchange the unused government assistance money could be used for temporary business tax breaks. The government’s job would be to support both sides so far as they are able. The way I imagine this would happen would be with a New New Deal package that assures the success of small business, reinforces the middle class, provides stimuli for the American worker, restructures the IRS, provides protections against too-big-to-fail companies, assures tax revenue from multi-national tax dodgers, streamlines legal immigration, and reins in noise traders on the stock exchange. The net result is that the nation’s wealth is translated more efficiently into the wealth of each member.

* * *

Many of the numbers are arbitrary, most of the loudest voices are arguing from ignorance, and some of the people involved have a vested interest in making sure that we do not know the truth about the issue at hand, and yet the issue of raising the minimum wage is going to be on the table during the 2016 primary election, general election, and more than likely for years beyond this. The Fight for $15 movement has gained more momentum than I thought possible, but then again, I never in my wildest dreams imagined that the ban on gay marriage would be repealed and so many of those petitioners looking to decriminalize/legalize marijuana would get their way, at least not by 2015. If you didn’t already get this point by the fact that I compared Donald Trump to Franklin Delano Roosevelt, the political process in America is absurd, even when the policies that you support are actually getting passed. At the end of the day, these silly little arguments that we are having from our armchairs impact a lot of human beings and can either prevent or create another recession. I have spoken before of the idea that by supporting the Fight for $15, Sanders starts with ethics rather than starting with economics, but it is obviously not that simple. If changes to the minimum wage take a turn for the worse, we can ruin lives. From my recent research, I’ve provided my best methodologies for either enacting the $15 minimum wage or rejecting it for something better.

Like always, let’s have a discussion. I challenge my readers to follow my lead. Do your own research. Let the research affect you, maybe even change your mind. Whatever happens, try to make a good case for both sides of the argument. Don’t abandon your convictions in the process. This is just an exercise in respect and humility. In case you couldn’t tell, I originally stood with the Fight for $15 workers but have developed a much more complex position since then. That doesn’t need to happen for you. I mostly just don’t want those involved in the discussion to come to reduce the views of others and sweep them aside as “liberal this” or “conservative that.” A lot of us are still making under $15 per hour, so it is not really an academic question at all. I’ve done all of my research on the Internet, but if there are any people out there who are actively involved in organizing and protesting for Fight for $15 I would really love to hear from you. There is something about activism, whether I agree with the issue or not, that is absolutely exhilerating to me. It feels like America in action!

2 thoughts on “Cases Against and For a $15 Minimum Wage

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s