Understanding the Reality of a Living Wage Increase — and why it won’t work
If you’re preparing to read this article, we suggest you grab a hot beverage, a warm blanket and curl up on your couch. Understanding the living wage concept requires looking at many aspects of business, government and individual economics, so here we go.
The first place we’re going to look at when it comes to government involvement in the wage debate is the United States Department of Labor(DOL) page, which is specifically dedicated to wage increase “myths.” The “myth” is that raising the minimum wage will cause people to lose their jobs. The evidence for “busting” this myth is a letter that was written to President Obama by congressional leaders urging the minimum wage increase and claims that over 600 economists agreed that raising the minimum wage would provide a small economic stimulus and not negatively impact the number of people actually employed. This is basically arguing no one will lose their jobs because Congress wrote a letter to President Obama claiming that no one would. The perfect way to evaluate this particular myth is to look at a large scale environment within the United States that has already employed an extreme wage hike; such as, Seattle.
In 2009, Seattle experienced its lowest level of employment since the peak of the prior recession period. Since then, Seattle has experienced a steady increase in employment numbers for a period of five years, from 2010-2015. This shows that employment had been on the rise in Seattle. The steady increase is for five years is great, right? In April of 2015 the 15 dollar an hour wage increase went into effect in Seattle and what does the employment trend show since then? It shows a sharp decrease in the number of persons employed and no signs of slowing. So now that the minimum wage increase has been implemented in Seattle for over a year, the real data can be collected and the reality is it does not look good for employment levels. People are losing their jobs at a substantial rate. So, if this is real world data, how can the congressional leaders justify their letter claiming there will be no impact on employment rates? Hmm… smells fishy.
The next “Myth” on the Department of Labor’s site is that small business owners will not be able to afford the minimum wage increase and their businesses will go under. The evidence the regime cites for disproving this “myth” is a survey of small business owners. When you click the link for this “survey,” it’s gone, and the visitor gets a “Page cannot be found” error. Strange, isn’t it? On top of the survey not being available, it also directs you to an organization that provides survey results for a variety of subject matters related to business. So, why is that survey not available any longer? Because they conduct their “research” in a very unscientific manner. Online surveys have been proven time and time again to not be verifiable or representative of a country wide model. They can be easily skewed by those administering them. This “myth” then relates right back to the verified information we found for the second myth. Obviously, there are existing businesses that could not afford to keep all of their employees at the wage increase level.
The rest of the “myths” on the Department of Labor’s website are almost exclusively backed up by evidence that was manufactured by unscientific or exclusionary practices; meaning, studies in which they deliberately excluded factors or elements that are vital, in order to get the results they wanted. Broken links that don’t take you to evidence and none of them involve long term research like what is now available with the Seattle models. So, I encourage our readers to just look through the list and use some critical thinking. If the Department of Labor’s best evidence to disprove what they called a “myth” is, “Well this one single source said this…” That is a red flag. This is the United States government’s website and they cannot even make a strong and realistic case for a wage increase.
The business sectors that will be the most impacted by a “living wage” increase like this are the unskilled worker areas of the business sector. This means retail, restaurant, and some areas of construction, manufacturing and guest services industries. While some may look at the data and say well it can’t have that much impact on the business itself if they are just laying off or letting workers go to make up the wage difference as all the data shows. How could it impact them if all they have to do is fire one person to pay the other? Well, that causes a huge impact to a business. If businesses have to downsize their employed staff, then they are having to try to operate at the same capacity and quality with fewer people. Inevitably, this leads to more turn over and lower quality of goods and services. So businesses will lose out in the long term when it comes to operational profits.
Many studies that have been utilized to prove that a wage increase will not impact individuals or businesses have now been debunked by scientifically accurate studies. This continued trend towards nonscientific research being used to back up policy changes like this should be alarming to anyone. If evidence has to be falsified to support a policy change of this magnitude it’s generally not a good sign and also indicates that ultimately a large scale policy change like this will not impact the global, or local economy in a positive way. Even the Fiscal Policy Institutes research was found to be incorrect. The proper scientific method was not utilized and the results were ultimately skewed. Luckily, more research like this study are starting to be more and more common and after peer review and efforts to debunk them most of these studies have been upheld by the scientific community. Increasingly painting a picture of a large minimum wage hike being severely damaging for the economy.
In 2015, Corporate America paid $343.8 billion in tax revenue and while some people equate this number to mean the “business sector” most do not know that most other types of businesses fall under the individual income tax laws. This means that all businesses that are legally structured as a sole proprietorship, partnership, or an “S” corporation pay their taxes more in keeping with the income tax laws and do not fall under the corporate tax codes. A factor that could positively impact a wage increase plan would be lowering of taxes across the board. While some believe that “corporate America” or the business sector of our country does not pay enough of its’ fair share in taxes, they are often not aware that a huge portion of our business sector is not included in those corporate tax figures, so a significant amount of money that is paid in taxes is not being represented. Overall rather than a minimum wage hike, that is extreme, a much more viable solution would be lowering taxes across the board; Such as income tax and corporate tax code, to encourage job growth and ultimately gradual increase in wages.
So this is where we get into the emotional argument. Many of us have heard this argument in various forms and what it ultimately boils down to is, “How can you not want people to have enough wage to survive?” or various forms of the same sentiment. So what that comes down to is an emotional idea that people who work 40 hours a week should make enough money to “Live” and it’s immoral and evil to think otherwise. So, let’s look at this in a more in-depth way. What defines the cost to live, or better yet, what really defines making enough money to live? How would this impact people who are working at the minimum wage realistically?
The first thing anyone needs to look into to understand this argument is what defines the “Cost of Living” and what is factored into this data. Six expenses related to living are weighted together to determine the overall cost of living: groceries, housing, utilities, transportation, healthcare, and miscellaneous goods. These are the indexes utilized to make up the total “Cost of Living” in any given area. So, the first thing to understand is that the average cost of living in any given area is going to be very different from area’s that are even right around it in the United States.
When any source talks about the “National Average Cost of Living” as a reference for raising the minimum wage this is not a fair statistic to utilize because factoring areas like New York City and Los Angeles into the national average drastically raises it. Demanding a national minimum wage increase would have a much more severe impact, negatively so, in rural areas and lesser cities that are not Los Angeles, New York, Chicago and other cities with similar cost of living. In some areas of the country raising the national minimum wage to 15 dollars an hour would put every employee in that area that got the raise in the absolute upper echelon for that area of income, you may say, “Well that’s great, isn’t it?” No, because that means the small businesses in that area are more than likely completely incapable of keeping up with that wage and more people will lose their jobs.
The other aspect of the definition of Cost of Living that needs to be evaluated involves some of the categories utilized to determine the cost of living. Specifically, we will focus on miscellaneous goods and transportation because those are the areas with the most error and difficulty to evaluate. These areas are hard to reliably factor in for any given area’s cost of living index for many reasons. Transportation for one is difficult, due to the fact, that including this in basic cost of living would be considered a reach. The very term cost of living indicates that these numbers are the very basic information for what it takes to literally stay alive in these areas. One could argue that transportation on a day to day basis is not a necessity for sustaining life. Walking is free, riding a bike is virtually free other than bike maintenance, and there are existing alternatives in this category that would add virtually no financial contribution to the cost of living. When it comes to the Miscellaneous goods area this includes things like cellphones, entertainment, pets and pet care, this is literally a category for luxury items that do not impact a person’s ability to keep living, making this whole category deceptive to include in the cost of living index.
The reality of a drastic increase of the living wage is that it will cause substantial loss of jobs throughout the nation, negatively impacting businesses and individuals. We didn’t even touch on the cost of goods and services increasing. It is also evident that the cost of living varies widely throughout the country and in some areas the minimum wage is already meeting the cost of living and then some. Ultimately the reality is on a national level we cannot solve the cost of living wage issue by taking more money from the employers themselves, the result of an overnight wage increase. To truly start to increase the wages in the unskilled labor sector requires an avenue that increases the income for the business owners which would encourage the retention of employees and kindle an organic wage increase over time. A wage increase by itself is just like adding another deficient it’s the concept of taking more without adding any value back in to offset it. A much more real solution is tax cuts and lowering of business sector regulations to encourage more income for businesses, in turn they can retain all their employees while also being able to accommodate a gradual increase in wages. This plan would be much less likely to result in a loss of jobs entirely for some employees with a high wage for the ones remaining and avoid all together the long term damage to business entities.
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