Minimum Wage

Minimum Wage


When international financiers met in Davos, Switzerland last January, a panel was asked what they saw as some of the challenges, headwinds for the world’s economy.  One headwind they identified was stagnant wages around the world.  It is clear that Democrats and Republicans share common ground around their agreement that low wage earners need more income, and the world economy needs them to have more income.  As a congressman, I would support a higher minimum wage……..but with targeted carve-outs.  I would hope and work for higher income support with fewer negative side effects.  But I would be committed to enacting some measures to get more income to low wage earners.


The undesirable side effects of raising the minimum wage is that there will be workers who are winners and workers who are losers.  Employed workers will benefit.  But there will be fewer minimum wage jobs created for individuals who need that entry level job to get their foot into the workplace door.  Some small businesses, start-up businesses, narrow margin businesses are very sensitive to increases in payroll.  A higher minimum wage will also encourage more automation of various operations.  That said, in weighing the costs and benefits, I come down on the side of a higher minimum wage if no other options are workable.


Wage Enhancement


The Republican response to low wages is the Earned Income Tax Credit (EITC).  The dollars and cents to the worker is about the same as a higher minimum wage.  The problem is the money only comes at tax time and you have to go through the paper work to get it.  I am interested in a recent proposal termed “wage enhancement” or a wage subsidy.   It takes the EITC and disperses that credit into an employee’s pay check (or the treasury cuts a credit check every two weeks – I don’t know).  The proposal expands the EITC to include single adults, single parents.  With this arrangement, the employer doesn’t receive the disincentive to create more jobs – albeit, minimum wage jobs.  A downside to this approach is that it has a lot of moving parts:   Does the employer explain this option to employees?  I guess it would be done via W-4s.  Does this really work for a person who picks up a short term minimum wage job for a week here and another for a few weeks there?   Is the treasury really going to take on cutting and mailing lots of small checks every two weeks to people who may be turning over employers more often than most?


Another downside to keeping employers’ payrolls low through some” wage enhancement” is that taxpayers would be subsidizing businesses that can clearly pay more.  Wal Mart makes around $12,000 profit per employee.  Raising wages $3/hr reduces Wal Mart’s net to $6,000 per employee – still a very profitable, viable company.   In addition, we have all heard the figures that an average Wal Mart costs taxpayers about $500,000 in government assistance programs for its low wage employees.  (apologies to Wal Mart)


McDonalds has institutionalized federal assistance to its employees with a program called McResource.  McResource helps McDonalds employees apply for various government assistance programs.  You can view this as a wonderful service to McDonalds employees or as shamelessly using American taxpayers.  (Yes, I understand that most fast food franchises are privately owned businesses.)


I would like to brainstorm with others as to whether it is possible to require higher minimum wages for large employers, and permit “wage enhancements” for smaller employers.  Admittedly, this is more complicated than I like to see government regulation get.