Poverty and income inequality are getting increasingly worse in the United States and need to be seriously addressed by our political system. In my last post on February 16, I presented data from the Heritage Foundation which shows that the War on Poverty has been quite successful in eliminating destitute poverty in the U.S. What this means is that most low-income families have the basic necessities of enough food to eat (96%), a refrigerator (99%), a telephone (96%), air conditioning (81%), a car (74%), etc. Of course, these “amenities” are provided at a great cost to society of about $1 trillion per year in social transfer payments.
Can we do a better job in helping the poor in the near term? The conservative writer and political activist, Ron Unz, thinks we can. He has just written a perceptive blog post “The Conservative Case for a Higher Minimum Wage”, proposing a national minimum wage of $12 per hour. His reasoning is as follows. Low wage jobs are primarily in the non-tradable service sector and so these jobs are hard to outsource and also hard to automate. Therefore the unemployment effects of such a minimum wage increase would be minimal. Mr. Unz estimates that, Walmart could accommodate a $12 per hour minimum wage with a one-time price hike of just 1.1%. The grocery prices of home-grown agricultural products would rise by less than 2%.
A $12 per hour wage for a full time 40 hour per week worker would mean an annual salary of $25,000 per year or $50,000 per year for a couple. At this income level, the family would be paying more in taxes and receiving fewer government benefits. This would turn many net tax recipients into net taxpayers and thereby raise their stakes in the American way of life as well as lowering the deficit.
I emphasize that this is a program to alleviate poverty in the U.S. It will not do anything to help the middle class worker whose wages have been stagnant ever since the recession started six years ago. This is a much harder problem which will require politically charged changes in U.S. economic policy.
I ask this because I really don’t know: What other dominoes would fall if we raised the minimum wage to $12? Sure that 40-hour a week worker would earn $25k, but what else would happen? Would unions raise their wages? Would health care costs go up? Would employers hire fewer workers?
There would definitely be tradeoffs. The Congressional Budget Office just issued a report yesterday estimating that with an increase of the minimum wage to $10.10 per hour, 16.5 million workers would have higher earnings and about 500,000 would have lower earnings because they’d lose their jobs!
I still think that an increase in the minimum wage is justified but that it should be paired with other measures to give the economy a boost in order to create new jobs at a faster rate. I’ll elaborate on this in my next post probably tomorrow.