Raising the Minimum Wage — The Right Way

Ever since President Obama took office I’ve periodically wished I had the ability to call the White House get him on the phone and say “Hey, you’re not doing it right!”  Let me be clear—I don’t mean he hasn’t done the right thing—just that he’s too often done the right thing the wrong way.

For example, like many economists and advocates for working families, including Paul Krugman and Robert Reich, I thought the President’s economic stimulus package was way long on help for the “Too Big to Fail” banks and other Wall Street institutions and way short on dollars for infrastructure projects, support for education and job training, and other programs that would have helped the working families who inhabit the nation’s Main Streets.

Same thing with health care reform.  Yes, it needed to be done. But he did it wrong.  Instead of a system that guarantees health insurers millions of new customers, does little to rein-in costs, and gives anti-reform advocates the ammo they need to scare small and medium sized businesses into opposing the plan, he could have done something simple: Medicare for all, or at least for all of us over the age of 55. Not only would this approach have made Medicare solvent by bringing younger, healthier people into the system, it would have given the government immense power to negotiate lower costs with providers.

Unfortunately, the same principle applies to the President’s proposed minimum wage increase.  It’s the right thing to do, but nine dollars an hour? Really?  At least in this instance Mr. Obama’s not alone in being wrong.  Predictably, the Republicans and their bosses in the business community, led by the U.S. Chamber of Commerce, the National Federation of Independent Business, and the National Restaurant Association, became apoplectic seconds after the words “raise the minimum wage” rolled off the President’s tongue during the State of the Union address.

Their reaction was as predictable as the specious claims they make about the cataclysmic effect giving the folks at the bottom of the economic ladder a boost will have on the economy.  Business leaders wail and gnash their teeth any and every time raising the minimum wage is proposed, including back in 2006 when labor led the successful effort to win voter approval of an Ohio Constitutional amendment that both raised the wage and indexed it to inflation.

The fact that their dire prognostications have never come to pass—last time I checked people are still doing business in Ohio despite the onerous burden of having to pay workers a whopping $7.85 an hour, and Costco is thriving despite paying starting employees more than $10 an hour –apparently doesn’t matter to them or to the members of the media who give their ludicrous contentions credence by repeating them.

Unfortunately, President Obama’s proposal was every bit as predictable in nature and scope as the arguments against it.  Raising the minimum wage $1.75 is fine as far as it goes—which isn’t far enough.  Had the President and his advisors really given the issue some thought they could have crafted a plan that would have both insulated the administration from criticism and gone a long way toward addressing the income inequality that plagues the working class and the middle class and has the U.S. economy stuck in neutral.

Here’s the deal.  Part A:  raise the minimum wage to $9 per hour for the vast majority of employers.  Their protestations to the contrary, it won’t bankrupt them or force them to cut jobs.  Especially when they begin ringing up the additional sales Part B of the plan generates: raising the wage to $15 per hour for full time and $11 per hour for part-time workers employed by the nation’s largest companies.

There’s little doubt that companies like Wal-Mart will attempt to avoid paying the higher wage by eliminating full-time employees or turning to temp services for workers.  To stop them, the law must include provisions that prevent employers from moving workers from full-time to part-time status and that classify temps as employees of the corporation using them.  Those two provisions would help ensure that companies comply with the letter and spirit of the law.

Which firms would qualify as “large” under the plan?  Those that directly employ 100,000 or more and average 80 workers per location.  Under this definition franchise operations like McDonalds and most other fast food chains would be exempt.  In addition, the increase would have little or no impact on large employers like IBM, UPS, FedEx and others who already pay above the proposed new minimum.

The plan would affect retailers like Wal-Mart, Target, Macy’s, Kroger’s, Home Depot, and Lowe’s along with America’s biggest banks—the folks responsible for the 2008 economic implosion would.  (Here’s an important side note: although most people equate low wages with retail, bank employees are grossly underpaid, and financial institutions are infamous for aggressively opposing union organizing drives.)

Using Wal-Mart as an example and assuming that 40% of the company’s 2.1 million workers are full time, their aggregate annual wages would climb from $17.4 billion to $26.2 billion.  Annual wages for the retail giant’s 1.2 million part-timers would jump by nearly $5 billion, from $12.5 billion to $17.2 billion.  In all, the increases would pump an additional $14 billion into the hands of Wal-Mart workers every year.

Imagine the staggeringly positive impact this one policy would have on the economy when the wages of the more than 3.5 million people who work for America’s other large corporations are factored in.  Billions of dollars will be spent on homes, cars, clothes, food, dining out, movies, electronics, and other goods.  People who now live paycheck to paycheck will actually be able to save and plan for the future. In short, millions of working families will have an opportunity to grab a piece of what has become a fading American Dream.

The increases would also help reduce the deficit—something Republicans should love.  Higher wages will generate more income and sales tax revenue.  As salaries rise, so will the flow of dollars into Social Security and Medicare, especially when tens of thousands of workers are no longer eligible for the Earned Income Tax Credit because they’re earning a living wage.  Finally, government spending will fall because the legions of low-wage workers at Wal-Mart and other firms that now receive government benefits will no longer need them.

But instead of a bold plan that could end decades of wage stagnation, we get a small across-the- board increase that simply won’t get the job done.  Someone get me the number for the White House.  I need to call Barack and tell him he’s doing the right thing the wrong way.


Leo Jennings

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2 Responses to Raising the Minimum Wage — The Right Way

  1. Jack Labusch says:

    Leo, Kelly, we’ll see single-payer soon in my opinion. Preceding it’ll be a massive Congressional inquiry so brutal it’ll make the McCarthy and Watergate hearings seem like traffic cases in mayor’s court.

    The lack of American single-payer is all about the continued existence of Rorem-Kimball—America’s unique group health insurance. Nothing less than a political bloodbath will undo the psychic and political vesting in Rorem-Kimball, a strange and little understood actuarial product with revenues ballparkish at $1 trill a year.

    Civic leaders and ordinary folks alike will get the shock of their lives when it’s shown to them the nature of R-K, and what its consequences have been for America.

    I’ve known about R-K for thirty years; bit late to do much about it now, I suppose.


  2. Kelly Ohler says:

    “Had the President and his advisors given it some thought?” Really? Is there any thinking Leftist leftover who thinks Obama is trying his poor little heart out against those big bad Republicans to do “the right thing?”
    Of course Obama “and his advisors have given it some thought.” Obama is highly intelligent, and his advisors well, they’re not stupid people, either.

    This means, and the Left needs to take this step…this means that Obama understands what he is doing.

    Let me state it again—Obama understands what he is doing. His advisors understand what they are doing. Obama and his advisors have no intention of doing right by the American people. They wre elected to do that—the phony Republican line-up should have been obvious to everyone on the left as a shoe-in for the smooth-talker who could hoodwink the American public.

    And contrary to the writer’s statements, NOTHING Obama has done has been “right.” Everything Obama has done has been disastrous for every working person in it. Forced purchase of health insurance is not health-care, and will not lead to single-payer. Forced purchase of insurance only engorges the already wealthy insurance companies and creates a bigger prison-slave class when people who cannot afford to purchase insurance will eventually go to jail for non-payment of the fines imposed.

    I already pay $250 per month per child for health insurance, and if I bought my own it would be an added $439 a month. Does anyone really believe insurance companies are going to simply forego these kinds of profit and make it “affordable?” Please stop living in la-la land.

    Here’s a plan, stop funding the wars and killings of people who don’t like us and we’ll have all the money in the world to take care of our citizens.

    And wake up. Obama is a smooth-talker who has done nothing but hoodwink people who are half asleep.


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