Making Sense of the Recent Hikes in Minimum Wages | DCR Workforce Blog

Making Sense of the Recent Hikes in Minimum Wages

It will be really interesting to have Corporate America debate the statement made by the German Industrialist, Robert Bosch:  ‘I don’t pay good wages because I have a lot of money; I have a lot of money because I pay good wages.’

After a decade of stagnation in minimum wages, with perennial and inconclusive debates on the advisability of increasing the hourly rate, many states across America are willingly adopting higher minimum wages. There is a surprisingly consensual approach to the issue from even influential Republicans, who have forsaken their orthodox stand on the issue. It has turned out to be a rare matter on which the Presidential contender is in rare agreement with the incumbent President. Given the contentious nature of the move, this unity may be considered to have a null effect, with both contenders scoring an equal number of brownie points with some of the voters (and losing them with others who oppose the move)!

Statistics from the US census put 50 million Americans below the poverty line while 100 million others get classified as low income or below $45000 – marking 48% or nearly half of America as officially poor. According to one study – 16 million American children are living in poverty and are prey to poor nutrition, lower living standards and poor opportunities for social improvement compared with the rest of them. This undernourishment could result in growth impairment, social and behavioral issues and poor cognitive and learning abilities, which in turn put pressure on the healthcare system and the law and order mechanism as the children grow.

Labor-intensive businesses always stood in strong opposition to the idea of increased wages. The naysayers also fear that hiring will take a dive, and always claim higher unemployment with higher than federal wages. They predict that lower rung opportunities will vanish, making life difficult for immigrants and under-qualified workers.  Accepting that employees are what make any entity function, the risk of serious unemployment seems a little far-fetched. The increased costs could be set off by higher prices instead of opting for lowered employment levels, which would affect productivity and long term growth. The fact remains that neo-classical economic theories link wages to the marginal productivity of a worker but tend to forget that they have no power to negotiate favorable terms for themselves. On the other hand, the class struggle predicted by Karl Marx may have been witnessed in New York’s Occupy Wall Street protests with the slogan ‘We are the 99%’ clearly demarcating the class divide between the rich and the poor – and the growing resentment for social and economic inequality resulting from unequal wealth distribution, high unemployment, greed, as well as corruption and the undue influence of corporations on government—particularly from the financial services sector.

It is not only the public but also the labor economists who support the idea of a wage rise, primarily for the benefit of the low income earners or the working poor – some of whom may not get to work full-time! Many need to hold down multiple low paying jobs to make ends meet, and feed their families. Recent research has clearly downgraded the image of America as the land of opportunity where meritocracy rules the roost. The divide among the rich and the poor has widened so considerably that the effects are showing on a variety of parameters like the expenditure on children’s education shows a 9:1 variance between the haves and have-nots, where education determines the future opportunities of an individual and assures a lucrative employment, even in a depressed market. Many children are also found to be food-insecure, though not desperately malnourished.

Ideally, minimum wages should have gone up steadily over the years to help the workers maintain a constant standard of living, unlike the deteriorating standards they must be suffering now. With the value of the dollar falling inexorably due to inflationary pressures and wages remaining stagnant, how can anyone budget for family needs as well as growing costs of necessities like food, gas and higher education?  According to the Bureau of Labor Statistics, there are 73 million Americans out there who draw hourly wages, of whom 1.8 million earn the minimum wages. Some of them, in the bottom rung, may also reap benefits from this hike to bring additional funds into the economy, estimated at $10 billion. The multiplier benefits of this additional money can also not be discounted easily.

Better pay means greater productivity according to quite a few studies. Raising wages may erode into the profits but jobs may not be lost. Prices may increase slightly but the rich will not be affected by them. Workers would also be less affected as they would have better purchasing power. Lower income groups tend to spend to their last dollar, increasing the money in circulation, creating jobs, reducing liabilities and mortgages and paying more taxes. More people may retire, go back to school, get married, and have children on better family incomes providing them a better opportunity at social mobility, and the women also earn more. Payroll and income tax benefits would rise and the federal deficit would come down. On the whole, the benefits do seem to outweigh negative considerations.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.