ANALYSIS: What Would a $15 Minimum Wage Mean to the Economy?
A national push to raise employee wages at restaurants, supermarkets and elsewhere to as high as $15 per hour pits labor organizers against business owners in an emotional debate about economics and the cost of living.
Not directly included in the discussion is an important constituency: the customers. If they support the idea of an increased minimum wage, they will likely see higher prices for hamburgers, clothes and other goods.
Economists and others who study consumer behavior say that shoppers may react sympathetically to the call for higher pay for workers in the service industry who struggle to make ends meet, but in the end, they will take care of their own needs.
“I would pay a couple of dollars more for products, but the question then is, do I get a raise too? If my salary goes up, I will be willing to pay even more for my products,” R.B. Barrett, 45, said outside a Whole Foods store in Chicago where some 100 people chanted and passed out fliers Wednesday outlining their demands: $15-per-hour wages and better working conditions.
Business groups say significant wage increases would require many of their members to lay off workers and pass on costs to the consumers. Some argue that doubling wages combined with the increased employer costs for the national Affordable Care Act could put their members out of business.
“You can’t isolate just the cost of a sandwich at a restaurant,” said Scott DeFife, executive vice president of policy and government affairs at the National Restaurant Association. “Lifting the minimum wage in that manner, to that degree, increases pressure on all of the other industries around it.”
On Wednesday and Thursday, demonstrations were held in Chicago, New York City, Detroit and Milwaukee as part of a nationwide movement of organized events. In Chicago, many who protested earn an hourly wage around Illinois’s minimum of $8.25, which would translate to an annual salary of about $17,000. A raise to $15 per hour would mean a salary of $31,200.
The workers’ push for higher wages comes as the nation has yet to create all the jobs lost during the recession. There are nearly 12 million unemployed people still looking for a job. Economists say many thousands more have given up hope.
The high unemployment seen in the aftermath of the Great Recession is hurting wages across the board, said Heidi Shierholz, a labor economist with the Economic Policy Institute, a labor-oriented think tank based in Washington.
“There is a very tight link between high unemployment and low wage-growth. It’s just as simple as if your employer knows you don’t have any outside options. They don’t have to pay you wage increases to keep you,” Shierholz said. Those earning the lowest wages, she added, have been hurt the most.
In theory, wage growth is tied to productivity, but globalization, politics and economic policy broke that relationship in the 1970s, Shierholz said. If the trend had continued, she added, the federal minimum wage today would be closer to $18 per hour instead of $7.25. That doesn’t mean that the economy could handle doubling the minimum wage overnight, but it could start increasing slowly, she said.
“This campaign underscores that the wages for the whole bottom swath of the wage distribution are just too low,” Shierholz said.
In Chicago, the demonstrations were run by the Workers Organizing Committee of Chicago, a recently formed union backed by local labor groups. Lorraine Chavez, a spokeswoman for the Workers Organizing Committee union, said the goal is not to double wages overnight. Workers also want better working conditions and full-time employment. And the union is prepared to continue to strike and plan other events until they reach all those goals.
“Workers have no choice,” Chavez said, adding that at $8.25 per hour, many workers qualify for food stamps and can’t afford to pay rent.
While consumers say they empathize with the struggle, for the many whose wages have stagnated and don’t feel confident about the future, price trumps making a moral or ethical purchase.
“There is a big competition inside every consumer’s mind between really wanting to do something that would help other people and really wanting to save money,” said Kit Yarrow, a professor at Golden Gate University in San Francisco who specializes in consumer psychology.
Yarrow said consumers would likely choose to support a noble cause once or twice, but ultimately, personal financial security would win. That’s partly because while consumers feel safe now that the recession is over, they don’t feel confident about the future.
“I think the wound was so deep and so great during the recession, and so frightening, that it made people kind of permanently a little bit more cautious about spending,” Yarrow said.
Cara Thaxton, 35, said she moved from California to live with her family in Chicago after being laid off in 2009. The experience, she said, has made her put more emphasis on saving.
“I still carry with me the two years of being unemployed on my shoulders,” Thaxton said, adding that while she would be willing to pay more for products if workers’ wages were to increase, she would also buy less of products at the higher cost.
Ayelet Fishbach, a professor of behavioral science and marketing at the University of Chicago, said people don’t apply their values every time they make a decision.
“What you find most people would do, is be willing to pay more – but under some situations,” Fishbach said, adding that people would make a moral decision to pay more if that decision makes them feel good about themselves or if that decision makes them look good in front of others.
Fishbach said it’s difficult to say how much more a person would be willing to spend when making an ethical decision depends on the cost of a product.
Gina Evans, 46, said she would support the push for higher wages if companies would absorb the new costs.
“I fully support the fact that workers need a higher minimum wage, but I am not willing to pay more for this to happen since I am already overcharged by retailers as it is,” said Evans.
Unlike Evans, other consumers are not so sure companies would absorb those costs.
“Part of me thinks minimum wage should be higher, but part of me understands that it is so hard to pay people a higher amount when stores like Wal-Mart expect to sell their products so cheap,” said Lisa True, 36.
Trish Kahle, a 25-year-old Whole Foods employee, said she cobbles together wages from three part-time jobs to make ends meet.
“I still qualify for food stamps,” Kahle said. “I believe my store can afford to pay us the $15, and a lot more.”
Kahle said her hourly wage at Whole Foods was bumped by $1.50, to $12, after a similar strike in April, but she only works 18 hours a week. She also works as a researcher at the University of Chicago’s history department, which pays $11.50 per hour, and as a mover, which pays $12.50 per hour.
Whole Foods said in a statement that its workers receive competitive pay and benefits, “some of which are extraordinary in the supermarket industry.” The company said its wages start at $10 per hour, and average $18.63 per hour companywide. It added that full-time workers share in store profits and are eligible for stock options, medical coverage, 401(k) plans and paid time off.
Despite some consumers’ seeming willingness to pay more for hamburgers if the workers making them were getting better wages, the idea runs counter to fast-food trends. Major fast-food chains are embroiled in a war over which can sell the most items for $1.
“You don’t have the choice if you don’t have the money,” said Diane Swonk, chief economist of Mesirow Financial. “We are still struggling as a nation, and we are not the only country struggling.”
MINIMUM WAGE DEBATE:
The minimum wage, a policy designed by the New Deal administration in the 1930s, peaked in the late 1960s at $9.22 when adjusted for inflation to today’s dollars, said John Hinshaw, a professor of labor history at Lebanon Valley College in Pennsylvania.
Conventional wisdom in economic circles has been that raising the minimum wage costs jobs. That’s because when you raise the price of something, generally demand decreases. For example, pricey labor might accelerate employers’ search for alternatives, such as adding more machinery to replace people or outsourcing jobs to foreign countries.
But some recent academic research seems to suggest raising the minimum wage might not be the job-killer it’s made out to be.
In real-world analysis, a rise in the minimum wage seems to have no negative effect on low-wage employment. One study even found that higher wages reduced employee turnover, which saves businesses money. Other academic research has found that minimum-wage hikes increase consumer spending. A study by economists at the Federal Reserve Bank of Chicago reported that immediately following a wage increase, incomes in households with minimum-wage earners rose on average by about $1,000 a year, but spending rose by roughly $2,800 a year.
Illinois Gov. Pat Quinn and President Barack Obama have called for an increase in the minimum wage. Republican leaders and business groups have lined up against it, calling it an anti-jobs idea.
The debate over the minimum wage is a well-worn one, Hinshaw said. “There’s basically no evidence that a higher minimum wage destroys jobs,” he said. “Of course, no state has doubled the minimum wage in one fell swoop.”
The call for a $15 minimum wage might not be meant literally. Hinshaw called it “less a negotiating position than a statement about what it would take to avoid poverty.
“Basically, this is a political demand by some workers and a union to raise the question of: What does the richest country in the world plan to do about the working poor?” he said.
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