Business Ethos Blog

A Living Wage for Everyone

Dr. David Mielke is the Retired Dean of the College of Business at Eastern Michigan University.

Dr. David MielkeWe have seen demonstrations in Michigan and around the country about providing a so-called living wage for everyone.  The protesters targeted fast food chains demanding that they pay a minimum of $15 an hour.  Is this the “Right Thing to do?”  Let’s look at some issues:

1. The $15 an hour is more than twice the current minimum wage of $7.25 an hour and 60% higher than the $9 minimum wage the President has proposed.

2. The issue really started in Washington, DC when the city council passed a bill for a super-minimum wage bill that requires a minimum hourly wage of $12.50 an hour for employees of big box stores like Walmart and Target.  The mayor has not signed the bill—yet.  As a result of the bill, Walmart has announced that it will no longer go forward with at least 3 of the 6 stores it had planned to open in the District.  This bill has implications for the poor and their ability to buy goods including food at lower prices and obviously for more jobs.

3. A number of studies have shown that minimum wage laws force businesses to reduce hiring and are counter productive to reducing poverty.  An exhaustive study this year by the National Bureau for Economic Research found that minimum wages pose a trade-off – – higher wages for some, against job losses for others.

4. As fast food operators will tell you, their customers are very price sensitive, hence the dollar menu.  They are already looking at ways to mechanize to reduce labor costs.  One example is the use of automated tellers.  The automation will occur, but raising the minimum wage will accelerate these changes and provide incentives to speed up the use of computers and machines.

5. The protesters point out that McDonald’s makes more than $5 billion and therefore can afford to pay higher wages.  However, what they neglect is the fact that the actual stores are independently owned and average profits of $50,000 and $100,000 a year with razor thin profit margins.

6. Unions complain that more heads of households, almost half of minimum wage workers are over the age of 25, are now working in low wage service jobs that leave full-time employees in poverty.  These jobs, on average, pay between $9 and $11 an hour.  Another overlooked fact is that the federal Earned Income Tax Credit supplements the full-time minimum wages by up to $6,800 a year.

7. Over half of the new jobs created since the recession have been part-time, primarily in the low wage fast food and retail industries.  During the 4 years since the end of the recession, job creation has been half the pace of a normal economic recovery, according to the Bureau of Labor Statistics.  If we had been growing at the average pace and actually producing full-time jobs, would we have the same problem with heads of households taking low wage jobs.  You may remember that President Obama promoted green jobs, promising 5 million of them for the middle class.  Only a small fraction have materialized.

8. Many of the picketers are organized by the Service Employees International Union and associated groups such as Fast Food Forward and Working America.  The SEIU’s dream is to unionize and collect dues from the estimated 4 million Americans who work in the fast food industry.

Should we raise minimum wages to $15 and hour—or even a minimum of $9 an hour as the President proposes?  Is it the “Right Thing to do?”  There is no doubt that heading a household at the minimum wage, even with the tax credit is very difficult.  But are jobs in the fast food industry what we visualize for our households?  Haven’t fast food jobs traditionally been filled by young, unskilled workers looking for part-time and entry level jobs?  Can we afford to trade higher wages for some at the loss of jobs for others?  Countries don’t create high wage jobs through government fiat.  Wages rise with productivity and worker productivity rises with business investing capital.  This is not the “Right Thing to do.”  Look at North Dakota where the economy is booming.  Fast food workers do earn $15 an hour there and get a $500 signing bonus.