Posted in Payroll | by: Kira Deutch

Your Pocket Guide to the Minimum Wage Debate

If the 2016 election was a dinner party, minimum wage would be the piping hot entree. The issue is an ethical, economic, and philosophical conundrum with one question cooked inside: Should the wage roof be raised? Because that single question represents how many people think a fair society should operate, it’s flavored with perplexity.

So what should a voter extraordinaire like you know about the debate? Whether you’re an employee or employer, there are a few key points to bone up on. In this article, we’ll unbox the main pros and cons so you’ll feel more confident when it’s time to fill out your ballot.

But first, the basics

Minimum wage is a rule that tells employers the smallest amount they can pay their employees. Here are a few more fundamentals:

What is it?

The federal minimum wage is currently set to $7.25. However if you’re a tipped worker, $2.13 is the minimum hourly wage, and then tips are used to make up the gap until you reach $7.25. That being said, the wage in your state may be slightly different. Some places have laws that bump the wage above the federal number. Find out your state’s number in this interactive map from the Economic Policy Institute.

Who does it affect?

The Bureau of Labor Statistics found that the average minimum wage worker is a 24-year-old female, and most likely works in retail or the restaurant industry.

Why does it change?

Inflation is the puffy center of the whole debate. In 1968, a single woman who earned minimum wage ($1.60 at the time) hovered right above the poverty line. Today, that same person who earns $7.25 dips right below it. Both Democrats and Republicans recognize that the minimum wage has soured in relation to inflation. However, each side disagrees on the actual solution and who should be calling the shots.

 

workers' compensation

 

A history class refresh

If you lived in 1912 America, you would only receive minimum wage if you were female, underage, or both. It was only twenty-five years later that it started covering men. The government enacted the first minimum wage — $0.25 (approximately four dollars today) — through the National Industrial Recovery Act in 1933, but it withered away in court. In 1938, it came back into the picture through the Fair Labor Standards Act (FLSA), and from that point on, it’s been here to stay.

Now, let’s skip ahead to today. The grassroots movement, called Fight for 15, has helped bring the discussion back into view. As a result of their advocacy work, Los Angeles, Seattle, New York, and San Francisco have all enacted a $15 minimum wage, along with a handful of other states and cities throughout the country.

Arguments at a glance

“If we’re really serious about some of the biggest problems we have in this country — including rising inequality and working poverty — one of the things we have to do is find a way to bring up those at the bottom.” —Sylvia Allegretto, economist at UC Berkeley

“Often times when you have the federal government or others step in and start to raise minimum wage, what happens is you take away or reduce some people’s opportunity to grab the bottom rung of the economic ladder to get the opportunities and the skills that you need to move up that economic ladder.” — Kevin Madden, former aide to Mitt Romney

The Pew Research Center found that 73 percent of Americans are in favor of nudging the minimum wage from $7.25 to $10.10. When you break that number out, 53 percent of those supporters are Republicans and 90 percent are Democrats.

The issue is highly politicized, and both sides have clear arguments and research to back up their beliefs. Proponents see a higher minimum wage as a cure for increasing workers’ rights and spurring the economy. On the other side of the fence, opponents believe it will hurt the economy and make it harder for companies to pay their teams.

Here’s a quick glimpse into the main arguments:

 

Proponents believe
Issue
Opponents believe
Raising the minimum wage will stimulate job growth because more people will have more money to spend. As a result, it will up the demand for jobs, and amplify the growth of the economy. Read this letter from 600 economists who are in the same camp.
Jobs
The law of supply and demand means that the minimum wage will lead to higher unemployment rates. San Francisco’s Office of Economic Analysis predicts that a $15 wage would cause 15,270 private sector jobs to disappear by 2019.
A higher pay rate will help us keep up with inflation, which has deflated the value of the current $7.25 federal minimum wage by 8.1 percent. The Economic Policy Institute estimates that a $10.10 wage in 2016 will bring the minimum wage back to the same value it had in 1968.
Inflation
Increasing the wage will raise the price of goods since companies will have to counteract the amount they lose by upping the amount they charge. A study from Purdue University found that a $15 minimum wage would bump food prices up by 4.3 percent.
Passing a new wage law will improve income equality by moving millions of lower-wage employees into the middle class. Research from the Congressional Budget Office says that a $10.10 wage would lift 900,000 people out of poverty.
Income gap
The minimum wage would widen the income gap even more because there’s too much cost-of-living disparity to have a one-size-fits-all solution. The Pew Research Center found that the majority of those in favor of a higher wage weren’t on the same page in terms of the actual amount it should be.
A bigger minimum wage will lower crime rates. The Council of Economic Advisors published a report stating that raising the wage to $12 by 2020 would lead to a three to five percent drop in crime.
Crime
As the minimum wage increases, so does the crime rate. Research from Boston College predicts that crime will rise 1.9 percent as a result of a larger minimum wage.
Lifting the minimum wage threshold will lead to less outsourcing because the economy will get stronger, and more jobs will be created. According to The Economic Policy Institute, a $10.10 minimum wage would create 85,000 new jobs and pour $22 billion into our economy.
Outsourcing
Higher pay rates will cause more companies to outsource jobs. Duke interviewed 400 CFOs who said that a higher wage would cause 70 percent of respondents to outsource some of their operations.

 

Where do I go to learn more?

Whether you’re for or against the hike, one thing’s for sure — the rate we land on will be stamped onto the paychecks and lives of millions of Americans. And once you understand all the sharp angles, you’ll be able to let your own opinion take shape.

About Kira Deutch

Kira Deutch is on the content team at Gusto, where she focuses on telling stories that empower small businesses across the country. She has a background in publishing and content marketing for startups. You can get in touch with Kira here.