How does a $12 per hour minimum wage hit you? Democratic members of Congress are rallying around a proposal to boost the federal minimum wage to that level by 2020 and while it’s not likely to pass the current Congress, it reveals just how out of touch they are with the effects of their policies on workers and businesses.
Currently, the federal minimum workers can be paid is $7.00 per hour. President Obama used his pen to unilaterally raise wages for federal workers to $10.10 per hour and his bully pulpit to nudge states to do the same. A $12 per hour minimum wage would far surpass what progressives have been fighting for.
Democratic Senator Patty Murray is expected to release a bill that would raise the federal wage to $8 per hour by 2016 and then add $1 incremental increases each year until hitting $12 in 2020. After that, it would rise in line with the growth in median wages, which rises faster than the inflation measure. That measure is currently used to adjust for changes in the cost of living for Social Security and other federal programs.
Momentum has been growing across the country for government to mandate that employers pay higher wages. We’ve seen cities like Seattle raise its wages to $15 per hour and Chicago vote for a $13 per hour minimum wage by 2019. Protests by fast food workers in hundreds of cities in favor of a $15 minimum wage are an almost weekly occurrence.
Companies are moving to higher wages on theirown though. Big employers like Walmart, Target, Starbucks, and McDonald’s have announced companywide minimum wage increases to near or above $10 per hour. These raise hikes are different from hikes mandated by government. Presumably the companies have done feasibility studies and considered what they can afford and still remain profitable (and thus keep people in jobs).
Polling does indicate that Americans generally favor minimum wage increases, and we all want workers to get every penny they deserve. But if you walk through the implications for jobs, then a different picture emerges.
A January 2014 poll by the Pew Research Center showed that 73 percent of Americans, including 53 percent of Republicans, supported raising the minimum wage to $10.10.
To defuse the support, Republicans and pro-business groups have highlighted the potential job losses that could arise from minimum-wage increases. If "you just ask if people support a higher minimum wage, people support it," said Michael Saltsman, research director of the business-backed Employment Policies Institute. "What's interesting to me is when you have a follow-up question and walk them through the consequences, support really falls."
A growing body of economic research suggests that moderate increases in the minimum wage would cause little or no job losses…
But moving substantially beyond that could lead to more significant job losses, particularly in low-wage regions of the country, said [Jared Bernstein, who served as economic adviser to Vice President Joseph R. Biden Jr.].
Republicans and pro-business groups are not just raising questions to “defuse” support for minimum wage hikes. The questions they raise are based on the realities of how the job market works.
One of the biggest, most historic –and most worrisome- changes from the Murray proposal would be the gradual elimination of a separate minimum wage for workers who receive tips such as waiters. Their minimum wage currently stands at $2.13 and dates back to the post-Civil War era. It’s intentionally that low because tips make up the difference. Good service is rewarded which is an incentive for tipped writers to be attentive, friendly, and always providing good service to customers.
A CNBC commentary explains how a similar policy in Seattle is hurting those workers who have relied on tips and whom the law is ostensibly meant to benefit:
The debate over minimum wage has become a super-local issue during the last few years…
Whichever side you fall on, there is one undeniable casualty as a result of the minimum-wage hike in Seattle: tips.
The city's new rules say that employers can count tips against the minimum-wage requirement. On top of that, a tipped employee's minimum wage in Seattle is set at $10/hour, compared to $11 for everyone else. While this helps employers meet the new costs, it's likely to turn out to be a triple whammy for the waiters and waitresses who rely on tips:
More taxable income. The current federal minimum wage for tipped workers is just $2.13/hour. In Seattle, the minimum wage for tipped workers even before this "increase" was much more than that, but it was still less than $10/hour. Either way, that first $10 in tips for workers will now become part of a more reportable and taxable income when it used to be a cash-in-pocket payment.
Lower tips. The dining public in Seattle is well aware of the minimum-wage hikes and is seeing this as a "raise" in tipped workers' pay as opposed to a de facto reduction in their income. Many restaurant workers are already reporting reductions in tips as customers take all of this into account.
Math. Employers now have a massive new burden of calculating volatile tip income for each worker and keeping very accurate records and making those gap payments when workers don't reach the $10/hour threshold.
Simply put, this makes it harder for even honest employers to pay their tipped workers accurately and in a timely fashion…
And it's really a bad thing to mess with tipping, because tipping is one of the few remaining ways the customer and the actual person providing a service can relate to one another in a truly free market sense. It's empowering for everyone involved in the transaction…
Not only is messing with the tipping structure a bad thing, but so is government’s raising minimum wages to arbitrary levels that will never truly satisfy anyone. A free market will dictate the best wages to recruit and maintain talent. Employers are smart about this, which is why we’ve seen big employers like WalMart and McDonald’s boost their wages.
When government steps in to meddle, it distorts the market and leaves customers, workers, and employers worse off. We don’t want to see small companies shut down because they can’t afford the costs of labor. We don’t want to see unemployed workers remain out of work because companies can’t afford to expand. Even more, we don’t want to see workers lose their jobs. If only policymakers operated with this level common sense.