Minimum Wage

shutterstock_172306652By Tommy Paulk

Proposals to increase the minimum wage have recently gained momentum, with some companies (and some states) taking it upon themselves to implement their own, internal minimum wage increases without waiting on the U.S. Congress to act.  Piecemeal increases on a statewide or company basis pose a unique danger to those companies and states who risk choosing to act unilaterally—a danger not posed by a federally mandated, nationwide increase:  that of a competitive disadvantage to those states and/or companies who act alone.

Before I retired in 2012, I was for some 18 years the CEO of a company with over 2000 employees.  Our company believed that our productivity was greatest when all of our employees had an opportunity to be financially secure to the degree that they could provide food, clothing, shelter and medical care for their families.   One look at a typical family budget showed then, and continues to show today, that basic needs for a family of four, with both parents working full time at minimum wage, could not be met, no matter how frugal their lifestyle.  The same is true for a single worker with no family.  It cannot be done.

So we set out to provide a company-wide minimum wage of $12.00 per hour, after a minimum tenure requirement had been met, for all employees.  We saw immediate gains in productivity and a steady increase in labor quality, as measured by absenteeism, tardiness, job-related injuries, etc.  Unfortunately, we quickly ran into a problem in one of our company divisions, a problem that rendered the wage increase impossible at that site.  The division was a food processing plant with some 200 mostly unskilled employees.  Because our competitors did not share our belief that wage increases would pay for themselves, they had no reason to follow our example, and we lacked the confidence to act alone and risk losing our market share.  So we exempted that division from our own wage policy, and it continues to be exempt today.   A federally-mandated wage increase offers the only hope those employees have for earning their way out of poverty while working full-time for that particular division of our company.

The economic and social prudence of proposals to increase the minimum wage usually generate heated debate among politicians and economists across a broad spectrum of widely divergent opinions.  Fortunately for those who aren’t sure what to believe, a brief look at the history of the minimum wage in the United States can provide some illuminating facts that help make sense of the claims made by those who argue opposing sides of the debate.  A minimum wage of 25 cents per hour (just over $4.00 in today’s dollars) first became law in the U.S. in 1938.  It has been increased 21 times since, the last being in 2009 to $7.25, where it remains today.   In today’s dollars, the all-time low was in 1948 ($3.74) and the all-time high was in 1968 ($10.34).

Since the Great Depression, there have been 13 recessions.  Among the worst was one that lasted 13 months, from May, 1937, until June, 1938.  The first minimum wage increase in 1938 is credited by many economists as being a factor in the recovery from that recession.  Not one economist, then or now, claims the minimum wage helped cause it.  Such a claim would have been foolish at best, given the fact that the recession was nearly over when the first minimum wage became law.

In the 12 recessions that followed, not a single one followed an increase in the minimum wage.  Of the 22 increases in the minimum wage, only one can be credibly cited as a possible factor in worsening a recession.  The recession of 1973-1975, universally regarded as having been caused by quadrupled oil prices, saw a minimum wage increase in the middle of it, in 1974, from $1.60 to $2.00.

Economists disagree as to whether the increase prolonged the recession, helped in the recovery from it or had no effect whatsoever.   The decade of 1990-2000 saw an increase in the minimum wage from $3.35 to $5.15, over three increases in the first 7 years.  Those three wage increases were met with howls of protests from conservative politicians, corporate media and their economists, with predictions of doom , depression and economic ruin.  Yet that decade saw the largest period of growth in our economy in U.S. history.  We still await a single retraction , apology or even acknowledgement from the conservatives that they were wrong.

Despite the above facts, which no reasonable observer can dispute, the same, tired old argument that a minimum wage increase will hurt the economy is today given the same media coverage ( and in the case of Fox News, more than 20 times the coverage) as the argument that an increase will be helpful to the economy.   Worse, the corporate lobbyists who oppose the minimum wage seem to have unlimited funding for campaign contributions, while most pleas to our lawmakers in Washington for a minimum wage increase are rarely accompanied by a check.  The working poor have no money to give compared to those who employ them, and sadly the resulting legislation, or lack thereof, is a true reflection of that disparity.




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