Wednesday President Obama will give a speech on his plan to grow the economy and the middle class. Thursday fast-food workers will strike in 100 cities and stage protests in 100 others to demand $15 an hour and the right to form a union without interference from employers. Here’s something to consider: raising the minimum wage cuts government spending on Food Stamps and other programs.
The Minimum Wage
According to the Bureau of Labor Statistics (BLS) 1.57 million people in the United States make the minimum wage, and another 1.98 million make even less. These 3.6 million workers make up 4.7 percent of all hourly-wage workers. People who are supposedly paid tips and people under 20 can be paid less than this minimum. Some states allow businesses that are not engaged in interstate commerce (and therefore outside the jurisdiction of the federal government) to pay less. Some territories – notably American Samoa and the Northern Mariana Islands – also are allowed to pay less.
Of those who make minimum wage or less 44% are in food preparation and serving related occupations, 15% are in sales and related occupations, 9.7% in personal care and service occupations, 6.5% in building and grounds cleaning and maintenance occupations, 6.8% in transportation and material moving occupations and 6.4% in office and administrative support occupations. (Note that the largest sector that is below minimum wage is in food preparation and serving related occupations, with 16.5% of all workers who make minimum or less.)
Raising Minimum Wage Boosts Economy
The minimum wage was first enacted because economists understood that a wage floor is a floor for the economy. (This is why trade agreements that undermined wages and broke unions have undermined the middle class and led to the slow economy we have today.)
Raising the minimum wage boosts the economy and does not “cost jobs.” A 2011 Chicago Federal Reserve Bank study looked at 23 years of household spending data and found that increasing the minimum wage raises other incomes, and that every dollar of hourly wage increase for a minimum wage worker results in $2,800 in new consumer spending by his or her household over the following year.
President Obama has endorsed raising the minimum wage to $10.10 and indexing it to inflation. Monday Economist Paul Krugman wrote about the effect this would have, in Better Pay Now,
Early this year the Economic Policy Institute estimated that an increase in the national minimum wage to $10.10 from its current $7.25 would benefit 30 million workers. Most would benefit directly, because they are currently earning less than $10.10 an hour, but others would benefit indirectly, because their pay is in effect pegged to the minimum — for example, fast-food store managers who are paid slightly (but only slightly) more than the workers they manage.
Raising Minimum Wage Cuts Safety Net Spending
On November 1 the country went over the “Hunger Cliff” as the Supplemental Nutrition Assistance Program (SNAP) — commonly known as “Food Stamps” — was severely cut, leaving millions of Americans in desperate straits and local food pantries overwhelmed. House Republicans currently are trying to cut the program by another $39 billion. (Senate Democrats voted to cut it by “only” another $4 billion.)
Raising the minimum wage is a better way to cut spending on assistance programs because higher wages cut the need for assistance such as Food Stamps. Raising the minimum wage increases other wages as well, for example low-paid supervisors of minimum-wage employees would receive a boost as well. So it is not just the minimum-wage employees who benefit and who need less assistance.
Currently 52% of fast-food workers get aid from public programs like food stamps. Raising the minimum wage cuts this need. And cutting the need cuts the cost of these programs.
According to the National Employment Law Project, “Low wages and lack of benefits at the 10 largest fast-food companies in the United States cost taxpayers an estimated $3.8 billion per year. McDonald’s alone costs taxpayers an estimated $1.2 billion each year.”
A Berkeley Labor Center study, Fast Food, Poverty Wages: The Public cost of low-wage Jobs in the fast-food industry says “the cost of public assistance to families of workers in the fast-food industry is nearly $7 billion per year.” and “Due to low earnings, fast-food workers’ families … receive an annual average of $1.04 billion in food stamp benefits.”
That $7 billion — $1 billion of that for Food Stamps — is spent helping just the workers in the fast-food industry. Fast-food workers are just some of the “food preparation and serving related” occupation that is 44% of workers making the minimum wage or less.
Again, we spend $7 billion on government assistance helping people just in the fast-food industry because they are paid so little. They are just some of the workers making minimum wage, which means $7 billion is just some of the spending we could cut if we just paid them more.
If minimum wage workers receives a raise, and that increase ripples up through the ever-growing low-wage end of our economy, the need for government assistance will decrease and therefore so will the spending on the programs. The right way to cut spending on assistance for Americans is to decrease the need for that assistance, not decrease assistance for those in need.
Don’t cut programs for the people who need them, cut those people’s need for the programs. It’s the right thing to do and it also makes money sense.