“I can’t survive on $7.25!” runs the chant of striking fast-food workers, in rolling strikes moving through major American cities this week. The goal of the fast-food strike is to double salaries to $15 an hour and unionize the cheap-eats work force.
McDonald’s accidentally stirred the hornet's nest a few weeks back with an employee budget worksheet that assumed a model employee who works two full-time jobs. Even with the example person carrying a second job, the numbers still didn’t really add up. Setting aside just $20 a month for health care raised eyebrows, for example. McDonald's took a hit on the resulting publicity.
President Barack Obama has for months been pressing to hike the minimum wage to $9 an hour, citing a growing gap between rich and poor. The federal minimum wage last was raised in 2009.
With low-end jobs at the heart of the current economic recovery, some argue that boosting the minimum wage will pull workers out of poverty, while others foresee disincentives to hire resulting in even higher youth unemployment.
A new normal?
The push to raise the minimum wage is “an act of resignation,” said Douglas Holz-Eakin, president of American Action Forum and former director of the Congressional Budget Office. “We can’t do anything about it, so let’s just transfer income to workers at the bottom.”
The push to hike the minimum wage takes place amidst a hesitating recovery. Most job growth since 2009 has been in low-wage jobs. But teen unemployment, which should most obviously benefit from low-wage jobs, remains at a staggering 24 percent.
The July jobs report released Friday offered little to cheer about. Unemployment fell slightly to 7.4 percent, but much of that came from workers dropping out of the market. And as the Huffington Post noted, “Temps accounted for nearly 8,000 of the jobs added in July, and along with retail and restaurant workers made up more than half of the employment gains.”
“This has been a very severe recession and a very weak recovery,” said Holz-Eakin. “It would be my hope that we can make sure this doesn’t turn out to be the new normal.”
Economists disagree sharply over the “disemployment” effect of the minimum wage. The old conventional wisdom was that a measurable spike in labor costs accomplished by increasing the minimum wage would lead to fewer low-end jobs.
This axiom that increased wage costs mean fewer jobs came under heavy fire in the past decade, and before long it was widely accepted that modest minimum wage hikes had little impact on overall employment. But that recent consensus appears far from stable.
A January 2013 study published by the National Bureau of Economic Research concluded that the "evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others." The authors found particularly sharp impacts on teen unemployment.
This teen disemployment effect was noted by the Wall Street Journal, which after the minimum wage was increased in 2008 editorialized in 2010 that a “higher minimum wage has the biggest impact on those with the least experience or the fewest skills. That means in particular those looking for entry-level jobs, especially teenagers. And sure enough, as nearly all economic models predict, the higher minimum has wreaked havoc with teenage job seekers, well beyond what you would expect even in a recession.”
“I would say there is an academic dispute on the minimum wage and overall unemployment effects,” Holz-Eakin said. “But I don’t think there is much dispute that it is a disincentive to hire teenagers and low-skilled workers.”
Who are they?
Much of the dispute hinges on who these workers are or ought to be.
Those who favor goosing the minimum wage see the fast-food worker as an adult, often a single parent, supporting a family. Their critics see the jobs as aimed at young and unskilled entry-level workers.
About half of minimum wage workers in 2012 were over 25 years old, according to the Bureau of Labor Statistics. The teen share of the minimum wage market has dropped from one quarter to 16 percent over the past 10 years, suggesting that teens are being squeezed out of entry-level jobs by older unskilled workers.
Critics of minimum wage hikes argue that high unemployment rates among young workers will be driven yet higher by increased wage costs for unskilled labor.
By 2012, 17.8 percent of hourly workers had a college degree, according to BLS numbers, up from 13 percent in 2002.
It was unclear from the McDonald’s worksheet whether that employee was meant to have a family. The worksheet has no line for child care and assumes two full-time jobs, atypical of a parent.
And yet, one in six fast-food employees is a single parent, acknowledged Mike Saltsman, research director for the Employment Policy Institute, a free market advocacy group with industry ties.
“We can have one of two things,” Saltsman said. “We can have a $15 minimum wage, or we can have the entry-level opportunities that we have right now. But we can’t have both.”
Saltsman sees a minimum wage hike as a poorly targeted social welfare program, further reducing employment for those who would prefer to work for less rather than not work at all. His answer for poor people struggling to support families on low wages is income-based social welfare support.
The biggest welfare recipient in the United States is Walmart, according to Vermont Sen. Bernie Sanders, an independent, because its low-income employees inhale food stamps, Medicaid and earned income tax credits, leaving taxpayers to cover the gap between a living wage and what their employer pays.
Sanders made the charge in a recent heated exchange on CNN with Holz-Eakin, who in a subsequent interview was quick to dispute the anti-Walmart rhetoric.
“Only about 1 percent of Walmart employees work at minimum wage,” Holz-Eakin said. But he readily observes that far too many poor people are attempting to live on extremely low wages.
Holz-Eakin argues that in addition to not addressing the root problem of a dearth of quality jobs, the push to increase the minimum wage is poorly targeted as a poverty solution. It tends, he argues, to benefit the children of affluent parents just as much as it benefits the single mother trying to support a child.
Instead, he argues, hiking the minimum wage will result in yet higher teen and low-skill unemployment — benefiting those who do manage to find work regardless of their need, while leaving many unemployed or cutting hours for many who need work.
“If you want to worry about poor people, then first identify them as poor and then find a government program that addresses their poverty,” Holz-Eakin said. “The minimum wage doesn’t do that.”
“The median age for a fast food worker now is 29,” said Rebecca Smith, an attorney with the National Employment Law Project, which is playing a major role supporting the fast-food strikes. “And about 90 percent of workers making less than $10 an hour are adults, and about one-third of them have some sort of college education.”
She disagrees with Holz-Eakin on his claim that the minimum wage is poorly targeted. “Folks just can’t survive on those kinds of wages,” Smith said. “The focus is on the quality of these jobs in which more and more Americans are spending their life.”
“One of the changes we have seen has been the move to low-wage jobs where adults are working and spending their lives,” Smith said. “We are hemorrhaging jobs in the decent-paying industries and replacing them with low-wage service sector jobs. It’s our responsibility to make sure that these jobs are good jobs.”
Smith argues that a trickle-up stimulus will grow the economy by strengthening demand. “If wages grow and people have more money in their pockets, then they will spend it.”
The fast-food industry is a “$200 billion industry that can afford to make these adjustments,” Smith said.
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