Tracking the Pros and Cons of Increasing the Minimum Wage

From coast to coast and at every level of government and enterprise, in the midst of a slow-growth economy, pressures understandably are rising for higher minimum wages in the hopes they would boost household finances and, ultimately, consumer spending. But will they?

President Obama, as well as other federal and state politicians, are advocating for the federal government to boost its long-standing $7.25 an hour minimum to $10 an hour or more.

A survey by an activist group supporting that effort, “Business for a Fair Minimum Wage,” reports reports that “small business owners with employees are strongly in favor of raising the federal minimum wage to $10.10 and adjusting it to keep up with the cost of living in future years.”

Massachusetts was one of the first states to make a move, increasing its minimum wage to $11 an hour, and is currently the state with the highest minimum wage. Seattle will outdo that when it steps up to a $15-an-hour minimum over the next few years.

News media are providing a positive spin by making shining examples of companies that pay high wages to their workers, ranging from Costco to small restaurant chains such as Boloco and Shake Shack. At the same time, progressives continue to vilify major employers, including McDonald’s and Walmart whose business models of providing inexpensive goods to the American masses are dependent on keeping wages low.

IS A HIGHER MINIMUM WAGE PROFITABLE OR SUSTAINABLE?
But business chiefs need to make careful consideration of any change in their minimum wages for a number of reasons. Higher minimums in the low-margin restaurant business mainly work for brands that operate at the fast-casual level, at higher price points, or in major metro markets where incomes tend to be highest, such as New York, Boston, Seattle and Washington, D.C.

Besides, there are major flaws in the case that political progressives make for the economic lift provided by higher wages. Many companies have made it clear that they would lay off workers if forced to boost minimum wages significantly.

Also, recent research has shown that while low-wage workers may benefit from a higher minimum, low-wage families—said to be the most important beneficiaries of a so-called “living wage” for low-income Americans—don’t benefit nearly as much.

The share of benefits going to poor families from a $10.10 minimum wage would amount to only 18% of overall benefits, with 29% going to families with incomes three times the poverty level or higher, according to new research from the University of California, Irvine.

That’s because most minimum-wage workers nowadays are not the primary breadwinners and often contribute a small share of the family’s overall income, such as spouses who run the household or young adults who live with their parents.

When it comes to raising workers’ pay, businesses must look at the competitive advantage, or lack thereof, on a case-by-case basis. The bottom line: Raising the minimum wage will not solve all of America’s poverty issues.