Minimum wage law reform in the United States takes some common cents

By Don Koenig 2007

The minimum wage in the United States has not been raised in many years. Today it is much too low to support a family of four without government assistance. This shifts the burden of supporting these families from business to the taxpayers. Extremely low wages also puts many in the position where they feel working is rather pointless. Some feel they can achieve similar living standards through not working and by finding a way to go on total government assistance.

The minimum wage as of this writing is $5.15 per hour. This minimum wage adjusted for inflation is the lowest it has been in over 50 years. Minimum wages in relation to the national poverty line have not kept up. Since many citizens find ways to avoid working for these low wages it makes the hiring of foreign illegal aliens who will work for these low wages attractive to employers.

One argument used against increasing the minimum wage is the belief that unemployment in the United States is low, so there would be few additional legal workers to attract in this nation even if wages were raised. By this argument, these believe raising minimum wages would just drive up everyone's wages and inflation. However, those who use this argument fail to understand that those who gave up looking for jobs are not counted in the official unemployment figures. The real unemployed percentage in the United States is in double digits. The inflation argument was also used in the past and it never proved to be true after past minimum wage hikes. At times in our history, the minimum wage was raised as much as 25 percent without any notable impact on inflation.

Those who are on total assistance in the United States are a substantial percentage of the population. About 40 million people or 13 percent of the population of the United States live below the federal poverty level. The percentage of the population who are on some form of public assistance program would shock the nation if known. The cost of the bureaucracy that administrates these social assistance programs also gives us part of the reason why the middle class tax burdens are so high.

No civilized society should place working adults in a position where they can not support themselves and their family when they are working. Working people should not have to go through the humiliation of applying for government assistance, nor should the taxpayers of the nation be asked to subsidize employers who pay unlivable wages.

Another argument used against higher minimum wage is that higher wages will drive manufacturing out of the country, but in reality, most minimum wage jobs are in service and agriculture. These jobs would not be impacted by foreign competition. For the small amount of low wage manufacturing that is still left in this country the issue has less to do with the minimum wage rate and more to do with the reasons why politicians signed trade agreements many years ago that killed the manufacturing base in this nation. It is also really about why politicians continue to allow unfair trade practices. For example, China's currency is undervalued by their government by 30 percent and this is a large part of the reason why we bought over $200 billion more from China than what we sold to them just last year. It is also the main reason why those from Central America and Mexico have 40 percent unemployment and come illegally to the United States looking for work. Switch this 200 billion-giveaway program each year to the manufacturing sector in Central America and Mexico and then seriously tell me they would still be coming here for jobs.

Minimum wages should be set by law so that two working adults working a combined 60 hours each week would always exceed the poverty level set by the government. I say 60 hours because the spouse of the primary worker cannot always work full time and should not be expected to work full time. Those families working very hard and exceeding 60 hours per week should have the chance to save money and improved their lives.

The federal poverty level for a family of four in 2006 was $20,650. The hours worked in a year should be based on a 5-day week and 48-week year (20 days off per year) or 240 working days. Thus, the minimum wage days worked would be 1.5 x 240 = 360 days. The minimum wage hours would then be 360 x an 8 hour day = 2880 working hours per year. This figure should then be divided into the federal poverty line of the previous year and adjusted for the inflation since the last calculation of the poverty threshold.

Using this formula on the federal poverty line in 2006 for a family of four -- $20650/2880 = $ 7.17 per hour x 1.02 inflation = 7.31 per hour rounded up to the nickel the minimum wage in 2006 would be set at $7.35 an hour. About 1/4 of the states in the nation have taken it upon themselves and have already boosted the state minimum wage to levels near the level in my formula without significant impact on the economy.

If this formula was enacted the national minimum wage would be raised about 20 percent this year (2007) and 20 percent next year and then adjusted for inflation each year thereafter. Doing this would have minimal impact on the consumer but the impact on working people would be enormous. Any increase in the cost of products and services passed on to the consumer would be offset by a lower burden on the taxpayers to assist low wage earners.