4 Myths About Raising The Minimum Wage That You Probably Believe

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Every so often, (where the word “often” means “election time”) interest groups and politicians suddenly decide that now is a good time to start talking about increasing the minimum wage again. Taking a break from downloading pirated movies and telling the critics of their favorite singer to go home and die, hoards of internet users then swarm to message boards and suddenly transform into economic professors. Just like repeating the line “we’re currently experiencing technical difficulties” made us sound smart when we were 10 years old, many start rattling off economic terminology to explain how higher wages increase demands, stimulates the local economy and creates jobs .

Here’s a breakdown of the top four economic myths about raising the minimum wage:

 

Myth #4: Higher minimum wages means more employee loyalty and productivity.

Costco, where the starting hourly wage is $11.50, is often thrown around as an example of how paying employees more than the minimum wage actually helps businesses because it attracts and keeps great employees. As Costco’s CEO said, “”Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty. We support efforts to increase the federal minimum wage.””

That’s great for Costco and all the great employees they attract. The question everyone else should be asking: what about all those not-so-great employees?

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Because let’s face it, sometimes standing and stuffing precut ingredients down a taco shell at the same time is pushing the skill set for some people. Besides, there is also the concept of the minimum wage. A lot of workers translate minimum wage = minimum effort, no matter how high it is. Because hey, if you’re paying me the lowest amount legally required by law, why bother?

So how does this affect employee loyalty and turnover? Let’s say Walmart was forced to pay an $11.50 minimum wage to match Costco. Costo’s employees will suddenly realize they are now literally the lowest paid workers in the country and *POOF* all that touted job loyalty disappears. After all, there’s no reason why those great workers will stick with Costco now that they can get paid the same anywhere else.

 

Myth #3: It’s good for the economy.

This myth goes something like this: if we raise the minimum wage, people will have more money in their pocket to spend. Since minimum wage earners are the types of people who need to spend their entire paycheck right away, the money flows right back into the local economy (unlike the filthy rich people who save and invest it). This increased purchasing power then inspires businesses to hire more people to help serve this increased demand. Yay, economics!

Unfortunately, upon closer examination, this myth falls flat on its face. If attracting business from people who need to immediately spend their entire paycheck really did have corporations rubbing their hands in glee, then low income areas would be particularly attractive places to open new businesses. Obviously, the opposite is true . . . unless you’re opening a pawn shop or liquor store.

But hey, at least raising the minimum wage means there is more money being spent in the economy than before right? That is absolutely true . . . if you think that businesses burn their leftover money to heat their showers.

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What? It was feeling a bit drafty in here.

 

Logically, any money that is now spent by employees would have instead been spent by businesses, cancelling out any “spending boost” increasing the minimum wage might cause. But who cares about business owners right? If they make less profit then we’ll just play ‘em a sad song on the world’s tiniest violin. What really matters is lifting millions of minorities, single moms and others out of poverty by getting them a “living wage”, right? Which brings us to the next myth:

 

Myth #2: It’ll help lift poor out of poverty.

A large part of this myth is a misconception of what kinds of people actually earn the minimum wage. For example, it is frequently pointed out that making $15,080 a year on the minimum wage is not enough to support a family of four. Though there are often-repeated legends of single moms working three jobs and still not making enough to keep the lights on, that certainly doesn’t represent the typical minimum wage earner. Here are some facts from the Department of Labor:

– More than half of people who earn the minimum wage are between the ages of 16 and 24.
– Their average household income is $65,900, a far cry from the “drowning in poverty” stereotype.
– 79% of these young people are only working these jobs part-time, probably because the majority of them, about 62%, are still in school.

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Only YOU can raise the min. wage and get us out of poverty!

 

Ok, so half of these minimum wage earners are suburban, middle-class kids. What about the other half, the adults 25 and older? According to the Department of Labor:

–          The average household income is $42,500 and half of those are only working part time.

–          Less than 25% of these adults live below the poverty line.

A statistic sometimes repeated is how there are more women than men working at minimum wage jobs. Yet as it turns out, the many of these women are likely just looking to make a little extra money on the side while their husband is working and the kids are in or graduated from school. Only 4% of minimum wage earners are single parents working full time.

So even though they are a small minority, will raising the minimum wage at least help those who are stuck in poverty? Sadly, no. As the U.S. Census shows, the problem with people in poverty is not that they are earning the minimum wage (9% of poor people work full time). The problem is that many aren’t working at all (67%).

Well ok. But at least the few poor who are working full time will start making more money right? After all, aren’t economists saying that raising the minimum wage doesn’t hurt overall job growth?

 

Myth #1: What are they going to do, make burger-flipping robots?

The fundamental principle behind any minimum-wage-increase fight is the myth “my job isn’t going anywhere”. According to the organizers of the 15Now campaign, “Nobody should have to struggle on poverty wages just to satisfy big corporations’ endless thirst for profits. Fast food and low wage workers are rising up demanding a $15/hour minimum wage.” When people point out that rising union wages caused car companies to replace workers with machines, minimum wage activists roll their eyes as they imagine McDonalds replacing its staff with Terminator-style, burger-making robots.

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We love to see you smile.

Unfortunately for them, making burgers by machine will be available in the not-too-distant future. One company, Momentum Machines, has almost finished developing a machine that can make fresh, customized, gourmet burgers at a fraction of the cost of a Big Mac.

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But let’s just say there is some job that ISN’T doable by machines. Is your job safe? Not necessarily. A lot more people, many probably better qualifed, will suddenly get very interested in replacing you. For example, many family therapists, who usually have a Master’s Degree at minimum, make $12.28 an hour. If McDonald’s was forced to pay $15 an hour, who would the manager hire, the family therapist looking to make more money or the single parent with little job experience?

So it turns out that raising the minimum wage certainly does benefit some people . . . those with valuable job skills. Not only do they get a bigger paycheck, but it also locks out many people who have little job experience out of the job market, reducing competition. Which, not coincidentally, was the reason why the minimum wage was created in the first place.

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4 thoughts on “4 Myths About Raising The Minimum Wage That You Probably Believe

  1. Although if the minimum wage is raised, wouldn’t Costco compensate to compete regardless in the job market or give some sort of incentive that would still make them ‘better’ so to speak? Increasing min. hourly pay could be a good thing, it might make the larger franchise/ conglomerate corps (walmart, target, Costco etc) to hire full time with full benefits to compete, although really it should be state by state, based on state tax not national.

  2. I agree with you that it would destroy employee loyalty and come on, 15 bucks an a hour is ridiculous, it would take down all the small private business in the country. But raising it to $10-14 depending on state would most likely force companies to hire in full time to not have to pay as many employees to cut back on their employment pay role…or hire through a temp agency

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