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Beaconomics: Should minimum wage be a living wage?

This article first appeared in the St. Louis Beacon, Aug. 26, 2013 - While fast food workers continue their push for a $15 hourly wage, polls find that a majority of Americans would support an increase of some type in the federal minimum wage, which has been $7.25 an hour since 2009.

  • According to a Pew Research Center and USA Today survey taken in February, 71 percent of respondents favored raising the minimum wage to $9, a proposal made by President Barack Obama in his State of the Union address. Obama’s proposal was criticized by Republicans, including House Speaker John Boehner, who warned that the increase would cause a loss of jobs for low-income workers. The Pew-USA Today poll found Republican respondents evenly divided over raising the minimum wage (50 percent in favor, 47 percent opposed); majorities of Democrats (87 percent) and independents (68 percent) said they supported a hike.
  • A Gallup poll found similar numbers: 71 percent of respondents said they would vote for raising the federal minimum wage to $9 an hour if given the opportunity.

Proponents of an increase say the minimum wage would be $10.74 today if it had been automatically adjusted for inflation since the 1960s. Opponents warn that a wage increase would have a negative impact on the economy and could ultimately lead to fewer jobs as companies cut costs.
A full-time worker paid at the federal rate of $7.25 an hour earns $15,080 a year. In Missouri, where the state minimum is $7.35, that worker would earn $15,288. And in Illinois, where the minimum hourly rate is $8.25, the annual wage would be $17,160. At $15 an hour, a full-time worker would earn $31,200. According to federal guidelines, the poverty threshold for a family of four is $23,550.

Of the various proposals floated by policymakers and advocacy groups to raise the federal minimum wage, none approach the $15 hourly rate being demanded by striking fast food workers. But their high-profile walkouts have kept the debate front and center, and they are calling for another national protest on Thursday.

Here are three viewpoints on the issue, representing pros, cons -- and a middle ground:

Martin Rafanan, community director, STL735: 'As a community, we are subsidizing these low wages'

Rafanan, a minister, is co-chair of the Missouri Jobs With Justice workers’ rights board for St. Louis. He is the organizer of STL735, which has led local walkouts by fast food workers.

Rafanan believes it is reasonable for the nation's 4 million fast food workers to be paid $15 an hour because the industry is highly profitable and successful.

"These are jobs that aren’t leaving St. Louis; they aren’t going to China,’’ Rafanan said. “Whether we’re talking retail, home care or fast food, we’re talking about jobs that are going to be our community’s jobs. We want those jobs to be good jobs. To have fair compensation like the jobs our parents had. They turned low-income jobs into middle-class jobs. That’s what we need in this community.”

Rafanan said that service industry jobs should offer an opportunity for upward social mobility.

"Right now that is not the case,’’ he said. "McDonald’s is a highly successful business with $5.5 billion of profit every year. This is a very profitable industry. They certainly have rewarded their CEOs and their management, whereas the wages of the workers on the front lines have been stagnant.’’

Rafanan said that most workers in the fast food industry don’t get paid sick leave or benefits and can have their hours cut without prior notification.

"They can go in and be told, 'You’re not going to work today.’ This is after folks have taken a bus, walked, gotten rides from family and friends to get to work.’’

Rafanan believes that service-industry wages have stayed low because workers haven’t organized.

"Manufacturing jobs were low-paying jobs, and people said, 'No, these will never be middle-class jobs.' Workers made them middle-class jobs. The industries were successful; they were profitable. And workers finally said, ‘Enough is enough. We need to get a profitable organization to pay us a fair wage.' ’’

Rafanan said that critics who believe that fast food workers are asking for too much "need to wake up.”

"The issue is, 'What does it take to just meet the basic needs of a person’s life in St. Louis? The Economic Policy Institute came out with the St. Louis number. For one adult and one child in a moderate lifestyle, it would cost $46,000 a year,’’ Rafanan said. “If you’re working full time in a low-wage job, you’re bringing home $15,000 a year, if you’re working full time. So you need three of those salaries in order to take care of yourself and one child.’’

Although fast food jobs were historically held by teenagers, Rafanan said a growing number of adults now work in the industry -- a result of the changing U.S. economy. These workers – many of them women -- are forced to turn to the government, their churches and families for financial support, he said.

"As a community we are subsidizing these low wages,’’ Rafanan said.

Michael Saltsman, Employment Policies Institute: 'The conversation needs to shift'

Saltsman is research director of the Employment Policies Institute, which publishes the minimumwage.com website and warns that raising the minimum wage would have negative consequences. The institute bought a full-page adin USA Today in July in response to the fast food workers' strike.

Saltsman believes that a $15 minimum wage would backfire, resulting in fewer job opportunities.

"You can either have a $15 minimum wage or you can have the same number of job opportunities in the fast food industry -- and other industries like grocery stores -- that you have right now,’’ Saltsman said. "You can’t have both. The economics of the industry just aren’t set up for that.’’

Saltsman said that businesses that are already operating on small profit margins will look for ways to reduce costs.

"There may be some businesses that lay people off, but really what it’s going to be more like is that over time you’re going to have McDonald’s locations here doing the same thing they’ve already done in Europe: Stop hiring cashiers and start putting in touch-screen units. And more grocery stores will decide to have customers bag their own groceries,’’ he said. "These are the transitions that are going to happen if the protesters get their way on a $15 minimum wage.”

Saltsman said that technology is already being developed, by companies such as Momentum Machines in San Francisco, that could replace fast food workers, both at the counter and at the grill. While such equipment is expensive, the investment would pay off quicker should wages jump to $15 an hour.

Saltsman said that increasing the minimum wage to $9 or $10 will not pull people out of poverty. He cites a 2010 study published by two professors from Cornell University and American University that found no association between higher minimum wages and a reduction in poverty. Part of the reason for that, Saltsman says, is tht many people living in poverty are unemployed and wouldn’t benefit from an increase and that many minimum wage earners live in households that have incomes above the poverty line.

Saltsman said that a $15 hourly minimum would likely create unintended consequences.

"I think the conversation needs to shift to what’s the best way to reduce poverty and there are other policies better targeted than raising the minimum wage,’’ he said.

Saltsman supports an expanded use of the Earned Income Tax Credit (EITC) to boost wages through the tax code.

"It’s essentially a transfer payment from the government to low-income families. It’s well-targeted, and it doesn’t have the same consequences because it’s not a mandate on employers,’’ he said.

Saltsman said that a relatively small number of workers are paid the federal minimum wage; he supports freezing it at its current level.

"What the research shows is that the typical minimum wage earner gets a raise after one to 12 months on the job, so I don’t think the minimum wage tends to be relevant for the vast majority of people because they don’t spend a lot of time there,’’ he said. "For the few families who do spend a longer time there that’s the importance of policies like the EITC to supplement those jobs -- as opposed to creating a $15 minimum wage so that the job isn’t there at all.’’

Benjamin Akande, economics professor, Webster University: 'It's a balancing act'

Akande is deanof Webster University's School of Business and Technology.

Akande believes the minimum wage will eventually be increased, though he cautions that it will require a careful balancing act in light of the nation’s still-struggling economy.

Akande said the fast food workers' demands for $15 an hour speaks to a larger issue  -- that people who are working hard still find themselves below the threshold of poverty.

"Much of that debate is focused on living wages,’’ he said. "Even though the hype is $15, that’s not where they realize it’s going to be. But it is a move that I think may eventually lead us to revisit the minimum wage issue, which has not been touched since 2009. I think from that perspective it’s going to lead to action. The issue then is: What are the consequences? How is it going to impact everything else? I think that’s something that is worth discussing.’’

Akande said a moderate wage increase would not have a negative impact – that people would not be laid off in an effort to cut costs. Such an increase might even result in some productivity gains as employee turnover decreases as workers stop jumping to new jobs for 20 or 30 cents more an hour.

"You’ll see people settle down and stay with their employer much longer,’’ he said. "But regardless of how we move the minimum wage, we will see some increase in the prices of goods. Because it always gets passed on to the consumer. The key is how much of it will be passed on and what will be the consequences.’’

Akande disagrees with the notion that a wage increase would lead corporations like McDonald’s to automate everything because customer service is a critical part of what customers are paying for.

"If McDonald’s automated everything and Burger King does not, McDonald’s is going to lose customers to Burger King. So you’ve got to be very, very careful in terms of trying to cut costs,’’ he said.

Akande said it is important to find the middle ground -- an increase that would not harm the economy but would provide an economic bump for the 4 million people working in fast food, many of them single parents, taking care of children.

"The challenge is the timing,’’ he said. "If this were brought up in good times -- when unemployment was 5 percent or below, when the economy was running like a smooth engine -- I think there would be less pushback. But in the times that we’re in, I think overall people are very careful not to take action that could trigger a consequence that could impact the economy in a negative way.’’

Akande believes the minimum wage will be increased to between $9 and $10 by the next presidential election, and he thinks the general public will support an increase if it is within "the range of sensibility."

"What is being asked for – an increase in wages to $15 an hour -- probably was a stretch,’’ he said. “But I think we all know that there needs to be some increase. The key is to come to an agreement as to how much is good enough. And what will be the consequence of that on consumers. It is a balancing act that I think we’ll all have to consider. But I think that at the end of the day we’re going to see an increase in the minimum wage.’’

Mary Delach Leonard is a veteran journalist who joined the St. Louis Beacon staff in April 2008 after a 17-year career at the St. Louis Post-Dispatch, where she was a reporter and an editor in the features section. Her work has been cited for awards by the Missouri Associated Press Managing Editors, the Missouri Press Association and the Illinois Press Association. In 2010, the Bar Association of Metropolitan St. Louis honored her with a Spirit of Justice Award in recognition of her work on the housing crisis. Leonard began her newspaper career at the Belleville News-Democrat after earning a degree in mass communications from Southern Illinois University-Edwardsville, where she now serves as an adjunct faculty member. She is partial to pomeranians and Cardinals.