Sunday, March 15, 2015

A Few Links to Dispel Conservative Myths Part Six: Minimum Wage

"What puzzles me is why there isn't more indignation. The Tea Party is the most indignant domestic political movement since Norman Thomas's Socialist Party, but its wrath is turned in the wrong direction. It favors policies that are favorable to corporations and unfavorable to individuals. Its opposition to Obamacare is a textbook example. Insurance companies and the health care industry finance a "populist" movement that is manipulated to oppose its own interests. The billionaire Koch brothers payroll right wing front organizations that oppose labor unions and financial reform. The patriots wave their flags and don't realize they're being duped. Consider taxes. Do you know we could eliminate half the predicted shortfall in the national budget by simply failing to renew the Bush tax cuts? Do you know that if corporations were taxed at a fair rate, much of the rest could be found? General Electric recently reported it paid no current taxes. Why do you think that was? Why do middle and lower class Tea Party members not understand that they bear an unfair burden of taxes that should be more fairly distributed? Why do they support those who campaign against unions and a higher minimum wage? What do they think is in it for them?" - Roger Ebert, April 9, 2011

God bless you Roger, and may you rest in peace. It was to attempt to answer many of the questions that Roger Ebert raised in the quote above that I wrote this series. And nothing I can think of typifies the gulf between liberal and conservatives more than the question of minimum wage. Minimum wage is a philosophy; either one believes in it or one does not.

I believe that a higher minimum wage is the right thing to do, both morally and economically. Clearly my conservative friends do not. Consider a discussion I had with my right-leaning acquaintances. In late 2013, Nancy Salgado, a 27-year-old mother of two and employee of McDonald's made news for protesting the poor wages paid by her employer. After 10 years at McDonald's, she was making only $8.25 per hour, significantly below the poverty line for three people. Incredibly, the response by McDonald's to the inquiries of employees seeking information on making ends meet was to suggest that they apply for welfare. From Emily Cohn of the Huffington Post:

"McDonald's workers struggling to get by on poverty wages should apply for food stamps and Medicaid. That's the advice one activist McDonald's worker received when she called the company's "McResource Line," a service provided to McDonald's workers who need help with issues like child and health care."You can ask about things like food pantries. Are you on SNAP? SNAP is Supplemental Nutritional Assistance [Program] -- food stamps ... You would most likely be eligible for SNAP benefits," a McResource representative told 27-year-old Nancy Salgado, who works at a Chicago McDonald's. "Did you try and get on Medicaid? Medicaid is a federal program. It's health coverage for low income or no income adults -- and children.""

My reaction to this article was simple enough: McDonald's, a corporation that makes around $6 billion dollars per year in profits, should pay Ms. Salgado a living wage. Furthermore, it's wrong for large profitable companies to expect the taxpayers to subsidize their employees in the form of welfare benefits.

Here are some of the responses from my conservatives friends to my opinion:
1. You say she isn’t paid enough? Well, she should go find another job that pays more. If she doesn’t, she’s just lazy.
My thoughts: While the economy has made great strides under President Obama, I'm not aware of large numbers of job openings for work that pays a living wage available to persons with a background in food service.
2. What is she doing at McDonald's after 10 years? That's supposed to be an entry-level job. She should be studying for higher-paying employment. There's plenty of demand for software engineers.
My thoughts: The fact that Ms. Salgado has two children to care for, may not have finished high school, and has no money and no time for school will probably be an impediment to starting a new career that requires years of full-time training and outstanding study skills.
3. Why doesn’t she start her own business? She could sell tacos from a bicycle! (Yes this was literally suggested.)
My thoughts: The fact that she has no time or money to do so and no experience in starting a business will probably be an impediment.
4. Why doesn't she move to another city, stay with relatives and look for a better job?
My thoughts: Just quit her job, pull her kids out of school, and with no resources or transportation, move in with a relative (for free) and start pounding the pavement, with the assumption that there are higher paying jobs for her in her new city? That seems impractical.
5. Corporations CANNOT raise wages. Shareholders, "would not stand for it."
My thoughts: Clearly this is not the case. I'll point out some examples later.

But the most chilling part of the argument was this. I pointed out that minimum wage in the 1960s, adjusted for inflation, would be $10.75 in 2013 dollars. In 2015, the federal minimum wage is only $7.25, and with a Republican Congress, it seems unlikely to increase any time soon. Given that corporate profit margins are at an all-time high, and corporate taxation at historic lows, and given much-increased worker productivity over the past several decades, there's no reason why minimum wage shouldn't be at least $10.75, right? Wrong, say my conservative friends. People working in food service and retail are "unskilled," and "unskilled" people should always, no matter what, expect to live in poverty. The hatred many conservatives show for Americans working at the nation's largest private sector employers never ceases to amaze me. Recently, Erick Erickson, of both Red State and Fox “News,” stated that persons working at minimum wage are those who have, "failed at life," while California Republican Rep. Tom McClintock, said that some people are simple not "worth" more than $7 per hour. For the record, a working person needs to make about $10 per hour to be above the poverty line for a family of three.

Several of the arguments made by my conservative friends are coincidentally included in this Ruben Bolling cartoon (click the image to enlarge, or go to the link).

Putting aside the moral argument for a living wage, and the purely practical one against asking the taxpayers to subsidize large corporations in the form of welfare payments to workers, there's also of course the macroeconomic argument for increasing the minimum wage. As I discussed in my recent post on conservative economic myths, demand-side policies such as minimum wage inject money into the roots of the economy, that is, among working people and consumers. This creates a multiplier effect that generates growth upwards through the economy. This is because an injection of extra income leads to more spending, which creates more income for others. The American economy and personal incomes have grown more during the eras during which the purchasing power of minimum wage was protected.

One more thing before I move onto the myths and facts. In the balance of this post, I'll be talking a lot about Wal-Mart. Wal-Mart is America's largest private-sector employer, and typically pays poverty wages. U.S. taxpayers subsidize Wal-Mart employees by an estimated $6.2 billion per year in public assistance including food stamps, Medicaid and subsidized housing. Wal-Mart has also been known to hold food drives for its own underpaid employees. Recently, Wal-Mart announced it would raise its minimum wage for all employees to at least $10. That's still too low, but I applaud them for a step in the right direction. I'd also like to note that CEO Doug McMillon says the pay increase will "play through retention," and that he has, "acknowledged some of the criticism that the company has sacrificed customer loyalty because of its pay practices." I've argued before that if Wal Mart paid more, it would have a better workforce, and more people would shop there.

Part Six. Minimum Wage
Myth: "Most minimum wage workers are teens." - Mike Flynn,
"Most people on the minimum wage are significantly younger than me." - Republican Congressman Aaron Schock, age 33. (Update 3/17/15. Wow, Schock just resigned in disgrace.)
Fact: The average age of workers at or near minimum wage is 35, and 88 percent are at least 20 years old. Half are older than 30, and about a third are at least 40.

One additional thought. I see this myth quoted a lot. Apparently, conservatives are greatly comforted by the lie that America's low-wage workers are just kids making a few extra bucks after school while living comfortably at home with their parents, and not adults trying to make a living. As Andrew O'Hehier of noted, "the working class has been convinced, in essence, that it does not exist. Workers in the service economy, at Target and Walmart and Starbucks, are seen as atomized, transient strivers – on their way toward college or the Army or the middle class or disability — and not members of any class at all."

Myth: A great many of Wal-Mart's employees are senior citizens already retired and working part-time, so they don't need a living wage.
Fact: While Wal-Mart does employee many seniors, fewer than 20% of its employees are 55 or older, and few people between 55 and 65 are already retired and working part-time; they're working full-time because they need to make a living.

Myth: Wal-Mart employees are paid above the poverty line. In 2014, the average full-time store worker was paid nearly $13 per hour.
Fact: Only 40% of Wal-Mart store workers are considered, "full-time." 40% are considered "part-time" and receive few benefits, while 20% are considered temporary and receive no benefits. calculates that Wal-Mart sales associates average $9.38 per hour, cashiers slightly less.

Myth: Wal-Mart is in an industry that simply can't afford to pay more than they do.
Fact: According to, Wal-Mart's big box store, Sam's Club, pays cashiers an average of $9.97 per hour. Sam's Club's competitor Costco meanwhile pays cashiers $15.87.

This Harvard Business Review study is now more than eight years old, but it's still a good summary of the both the difference between Costco's and Sam's Club's business practices, and the natural outcome of those same practices:

"Though the businesses are direct competitors and quite similar overall, a remarkable disparity shows up in their wage and benefits structures. The average wage at Costco is $17 an hour. Wal-Mart does not break out the pay of its Sam’s Club workers, but a full-time worker at Wal-Mart makes $10.11 an hour on average, and a variety of sources suggest that Sam’s Club’s pay scale is similar to Wal-Mart’s."

"On the benefits side, 82% of Costco employees have health-insurance coverage, compared with less than half at Wal-Mart. And Costco workers pay just 8% of their health premiums, whereas Wal-Mart workers pay 33% of theirs. Ninety-one percent of Costco’s employees are covered by retirement plans, with the company contributing an annual average of $1,330 per employee, while 64 percent of employees at Sam’s Club are covered, with the company contributing an annual average of $747 per employee."

"Costco’s practices are clearly more expensive, but they have an offsetting cost-containment effect: Turnover is unusually low, at 17% overall and just 6% after one year’s employment. In contrast, turnover at Wal-Mart is 44% a year, close to the industry average."

"In return for its generous wages and benefits, Costco gets one of the most loyal and productive workforces in all of retailing, and, probably not coincidentally, the lowest shrinkage (employee theft) figures in the industry."

"Costco generated $21,805 in U.S. operating profit per hourly employee, compared with $11,615 at Sam’s Club. Costco’s stable, productive workforce more than offsets its higher costs."

Myth: If fast food restaurants like McDonald's paid a living wage, they couldn't afford to operate; they'd go out of business.
Fact: An American hourly McDonald's crew member makes a pitiful $8.24 per hour. In Australia however, McDonald's operates 900 restaurants. The minimum wage there is about $14.50 per hour. Food prices at Australian McDonald's are only 1% to 17% higher than the United States. McDonald's also operate more than 1,200 restaurants in France, where minimum wage is about $12 per hour.

Myth: If Wal-Mart paid a living wage, it would have to raise prices substantially to maintain its earnings.
Fact: According to a 2011 study, raising the wages of all Walmart workers making below $12 per hour up to that hourly wage would cost the average Walmart shopper only 46 cents per trip. And figure of course doesn't even count the more difficult to quantify benefits that would come about as a result: a more loyal Wal-Mart workforce and more sales (people who work at Wal-Mart spend a lot of money there).

Myth: Wal-Mart may not pay well, but they create a lot of jobs.
Fact: According to a 2007 study from the University of California, Irvine, Wal-Mart destroys three jobs for every two it creates. According the Economic Policy Institute, Wal-Mart's practices of importing goods from China cost the United States nearly 200,00 jobs, principally in manufacturing, between 2001 and 2006.

Myth: Wal-Mart may not pay well, but things are cheaper there than at other stores.
Fact: Research by Bloomberg Industries in 2012 showed Target stores to actually be cheaper than Wal-Mart. Another study found Kroger's groceries to be cheaper than Wal-Mart's. (Of course Target and Kroger also pay workers poorly.)

Myth: If Wal-Mart isn't paying it's employees more, then they just can't afford to.
Fact: I hear this one sometimes as a "common sense" argument. It's just "common sense" that Wal-Mart's directors are good people and pay as much as they can "afford to," right? Wrong. Sam Walton himself said, "I pay low wages. I can take advantage of that. We're going to be successful, but the basis is a very low-wage, low-benefit model of employment." So how much does, Wal-Mart "take advantage" of its low-wage model? In the second quarter of 2014, Wal-Mart made $4.09 billion in profits. Sam Walton's adult children own just over 50% of the company, and receive over $3 billion in dividends every year. Can Wal-Mart "afford" to pay its employees more? Yes it can.

Myth: Raising the minimum wage will destroy jobs, because some companies can't afford to pay more.
Fact: A 2010 study from the Center for Economic and Policy Research found little if any negative effect of minimum wage increases on employment. A study that same year from the University of Massachusetts-Amherst found, "strong earnings effects and no employment effects of minimum wage increases." Nobel-prize winning economist Paul Krugman says raising minimum wage to $9 an hour would have, "overwhelmingly positive effects."

Last year, the non-partisan Congressional Budget Office weighed in on the issue, releasing a report that found an increase to $10.10 an hour by 2016 would increase the wages of 25 million Americans, but also cost the economy around 500,000 jobs. Republicans were quick to pounce on the 500,000 job losses number of course, never mind that the CBO was saying that 50 people would benefit from a $10.10 minimum wage for every one person who had to look for a new job. Economists were however quick to point out that the CBO is out of step with what other studies are saying about increasing the minimum wage and job losses. Paul Zornick of the Nation notes that, "Past meta-analyses have found that, of the many studies that have been done, the conclusions cluster around zero for job loss estimates."

Put it another way. The federal minimum wages was raised from $5.15 per hour in 2006 to $7.25 per hour in 2009, an increase of more than 40%. Far from seeing job losses, the economy has seen 60 consecutive months of private-sector job growth, more than 12 million jobs total. My home state of Washington has a booming economy; our minimum wage is $9.47, highest in the U.S. In April of 2015, the minimum wage for large businesses in Seattle will go to $11 per hour, and will reach $15 per hour in 2019. Has this scared businesses away? Far from it. Seattle is America's fastest growing large city. Finally, there's currently a story going around cyberspace that the new higher minimum wage is causing some Seattle restaurants to close. That it also a myth.

Myth: Raising the minimum wage will cause inflation.
Fact: A 2006 study of study from the University of Massachusetts-Amherst found that a 10% minimum wage increase would produce a cost increase for the average business of less than one-tenth of one percent of their sales revenue. Or again, let's go back to the 40% minimum wage between 2006 and 2009. Since 2009, inflation has been substantially below that of the previous decade.

In conclusion, a 2013 poll showed that four out of five Americans support increasing minimum wage to $10.10. So do three out of five small business owners, and more than 600 economists. For more minimum wage mythbusters, go here. I expect this post to be the conclusion of my series on conservative myths, until some new ones have had a chance to propagate.

Thank you. Good night, and good luck.