The talk of the town this week has been the proposed minimum hourly wage hike to $15 that passed the House but got shot down in the Senate. Although the relief bill still has hope, it is now impossible to have a minimum wage increase included. I have strong feelings about the politics of it all, but because this is Ethanomics, I’m going to stick to the economics of a $15/hr minimum wage in this article. Before I start, keep in mind two things:
- Employees outnumber employers (by a lot)
- There is a strong correlation between wealth and employers and not so much between wealth and employees
In economics, two metrics measure cashflow through individuals in an economy: Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS). The two curves are inversely correlated in that when one goes up, the other goes down equally, and when added together, they equal 1. For example, if an individual with an MPC of .8 (MPS of .2) found $100 on the ground, they would likely spend $80 and save $20. MPC and MPS correlate to wealth where someone with $0 to their name is more likely to spend money they find on food and general expenses, where a millionaire might spend 10% of the money and save the other 90%. High MPC individuals are far more likely to recirculate any currency they receive whereas high-MPS individuals are more likely to remove money from circulation by saving/investing long term.
MPS and MPC come into play when sourcing the money that funds higher wages. Wages come directly out of profit margins and inherently from the shareholders/owners of the business. Generally, shareholders have lower MPCs than the people they pay, so higher wages can directly result in economic stimulus, removing money from assets and circulating it in the economy.
Minimum wage increases go further than redistributing money to consumers who need them. They go towards paying folks enough to live off of in an increasingly expensive society. Relative to inflation the minimum wage has fluctuated in the $4–12 range in 2019 dollars since 1938. Minimum wage, relative to productivity since 1980, has grown only 17% as much as productivity has, meaning the average employee sees only 17¢ for each additional dollar created for their employer.
Contrary to popular belief, criminally low wages from employers isn’t a ‘them’ issue. Recent studies show the externalities of low wages on society as many workers of low/minimum wage jobs rely the most on taxpayer-funded public assistance to get by. It comes as no surprise that the same two companies with the most employees as low-wage workers, McDonald’s and Wal-Mart, also hold the title for most employees receiving government assistance. Holding this title isn’t a matter of employing the most people, because large-scale employers like Costco and Amazon, who pay $15/hr, don’t have many employees on the same programs. American taxpayers are paying for the profits of mass employers who can afford living wages but pay the minimum.
Advocating for higher wages is a movement that supports the working class but comes at the expense of small businesses. Typically, small business doesn’t have the establishment and constant cash inflow of larger business to afford higher wages and oppose minimum wage increases. Principally, I don’t believe a business that relies on paying substandard wages should be legitimate for their reliance on worker exploitation but I understand businesses require more work in start-up stages than later on. The easiest solution to this problem is including wage assistance with any minimum wage legislation. Say the next minimum wage increase includes an offer to pay 50% of wages for businesses with 6 or fewer employees, 25% for 7–20 employees, and none for more than 20 employees. The stipulation holds large corporations responsible for the welfare of their employees but allows smaller businesses to reap the rewards of labor at the early stages of business.
In conclusion, minimum wage laws suck. Unlike everything else in our economy, minimum wage is stagnant, and periodic increases only perpetuate a cycle of inadequate wages as the costs of living rise. Adequate legislation should tie minimum wage to some value indexed to cost of living (such as the Consumer Price Index) or Productivity/Profits (stock indices SP500, Dow Jones) so that multitudes of workers can afford to live before a billionaire gets richer.