Would Minimum Wage Increase Help Workers?

Steven King knows the difference between necessities and luxuries.

King has lived on the minimum wage for four years. Minimum wage is currently $7.25 per hour. At half-time, that’s $7,540 per year. At full-time, it comes to $15,080 per year, minus payroll taxes. Last year, King said, he earned $8,400 working in a program at the Salvation Army.

King lives an almost ascetic life. He rents a tiny apartment over a garage, pays his utilities, and walks or takes a bus. He has little money for much beyond that. The government stretches his wages by giving him $200 a month for food, and a phone with four hours per month. He’s not complaining. It beats the two years he spent sleeping in the bushes near a Wichita, Kan., hotel.

“It’s literally paycheck to paycheck,” he said. “I pay bills with one paycheck and rent with the other. It’s just really, really tight.”

In his State of the Union address, President Barack Obama proposed raising the minimum wage to $9 per hour in stages by 2015 – and then indexing it to inflation.

The arguments for and against that idea will sound similar to the last time Congress raised the minimum wage, when the increases were phased in between 2007 and 2009.

The White House maintains that modestly increasing the wage helps workers, boosts the economy by getting more money into the hands of those who will spend it immediately, and helps employers by cutting down on worker turnover. Several polls show that the majority of people support the idea.

The National Federation of Independent Business, which represents 350,000 small businesses, forcefully rebuts the Obama argument. It maintains that raising the wage will kill jobs by increasing costs for small-business owners without really helping the workers.

They argue that minimum-wage jobs tend to be second or third jobs in a family, are often for teenagers and are part-time, meaning the increase, so painful to the business owner, doesn’t do much to increase family income.

Economists come down on both sides of the argument, acknowledges Malcolm Harris, an economist and professor of finance at Friends University in Wichita, who tends to dislike the minimum wage.

“The national impact is fairly clear,” he said. “It drives up youth unemployment, particularly minority unemployment.”

Teen unemployment is 22.1 percent, nearly three times the unemployment rate, while the black teen unemployment rate is 40.3 percent.

“Those numbers won’t get any better if you raise the minimum wage,” he said.

The minimum wage workforce does tend to be young: Half are younger than 25. And two-thirds of minimum wage jobs are less than 35 hours a week, according to the Bureau of Labor Statistics.

But that still means that half of minimum-wage jobs are held by adults older than 25, and a third of those earning minimum wage are working at those jobs full-time.

The leisure and hospitality industry – typically restaurants and hotels – has the highest proportion of workers with hourly wages at or below the minimum wage.

Adam Mills, CEO of the Kansas Restaurant and Hospitality Association, said that restaurants as a whole already have a small profit margin, less than 4 percent.

“If the minimum wage goes up, then something else has to give,” he said. “It’s a combination of higher prices and fewer people working. We are not a high-profit industry. … A restaurant owner has to rub two nickels together and figure out how to get 11 cents out of it.”

And, he noted, wait staff who depend on tip income often earn far more than $7.25 an hour. He estimated it at closer to $11 to $15.

Melad Stephen, who owns several upscale restaurants, said that raising the minimum wage could have a big impact on his business. He starts his inexperienced employees at minimum wage and raises it as they grow more experienced. He estimated that his entire staff, other than the wait staff, earns an average of between $9 and $10 an hour. Setting $9 as the minimum would push his whole wage scale up.

“What’s going to happen is that if the labor is high, we’ll have to cut somebody’s hours,” he said. “When things slow a bit, we’ll send people home and have somebody do more.”

Wichita businessman Johnny Stevens also runs a low-margin business, the Pavilions at the former Kansas Coliseum, but he decided to pay his workers at least $10 an hour.

For Stevens, it’s all about getting and keeping good people.

“Truthfully, I’m losing money in those pavilions, but I feel like that I have to pay them more,” he said. “I’m better off in the long run because they’re more productive.”

He said it only makes business sense to pay workers enough to keep them interested in working. If he paid minimum wage, he’d get workers who would quit after a while and file for unemployment.

That pragmatic argument is one made by the liberal National Employment Law Project.

“Raising the minimum wage is closely related to a sharp reduction in turnover and a boost in productivity,” said policy analyst Jack Temple.

But he also argues that most minimum wage workers are employed not by local businessmen, but by national chains that have gotten quite profitable in recent decades.

This would simply take a little of that profit from the chains and give it to the workers – a tiny step toward reversing a 30-year slide in low-income wages – who would then spend it in the local economy, he said.