Minimum Wage (Part 3)
This is the final post in a series on increasing the minimum wage and offers a framework for implementing a living wage. Part 1 addressed some of the popular opinions and arguments for and against increasing the minimum wage and part 2 addressed some of the issues which complicate the process of changing the minimum wage or instituting a living wage.
A Living Wage
Personally, I really like the idea of a liveable minimum wage. I think it would be wonderful if someone could be self-sufficient on the minimum wage. Seriously, I do. And I don’t think it’s impossible to achieve, but I think using an arbitrary number like $15 an hour is an abysmal excuse for a plan. Doubling the minimum wage with no other adjustments will at best perpetuate the cycle of poverty and will more likely cause widespread economic calamity or collapse.
We can realize the goals of this plan without the disastrous side effects, but I don’t know that it will ever happen. Doing so involves some significant and sweeping changes to policies far beyond just picking a random number and calling it a living wage. But I think it’s possible.
If the minimum wage is to be a living wage, then it has to cover more than just the basics. A living wage should allow recipients to pay taxes; give to charitable or religious organizations; purchase a home; save; insure against loss; purchase nutritious food and decent clothing; pay for communication, transportation, and utilities; and include a small amount of discretionary income.
Taxes & Giving
The United States currently uses a progressive tax system which essentially uses your income and dependents to determine the amount of taxes you must pay. There are seven tax brackets. People who earn the least pay 10% while those earning the most pay up to 37%. When you include tax credits, many low income earners actually profit off of their taxes. In fact, the system of tax credits such as the child tax credit and earned income credit are essentially government welfare programs which redistribute wealth from high income earners to low ones. People in higher tax brackets pay “extra” each year so other people can get paid by “the government.”
What does this have to do with a living wage? First of all, if the idea of a living wage is that it avoids welfare, a position which I support, then relying on redistributive tax code welfare programs is antithetical to that goal. Second, if the living wage is about dignity and the honor of being able to take care of one’s personal needs and responsibilities, then that dignity and honor includes paying taxes to support the government which provides education, infrastructure, and protection for all citizens. If a living wage needs to be free of welfare and pay taxes, then the tax code needs modification. There are many approaches to address this, but here’s a simple one (and we’ll save all the talk of credits, deductions, and exemptions for another day).
Set the federal income tax rate at 20% for every person earning an eligible wage (minimum wage or higher). Of this 20%, those paying taxes could allocate up to 10% of their tax to an approved charity (i.e. not your vacation fund) of their choice. For most Christians, this would mean 10% to the Church and 10% to the federal government. However, the atheists and secular humanists could allocate their 10% to the ACLU, NPR, PETA, Planned Parenthood, the SPLC, or just give the full 20% to the government. This would increase the Church’s ability to do charity work to help those in need in the local community, it would likely increase the government’s revenue, and it would preserve the dignity and honor associated with earning a living wage.
Regardless of how market conditions affect the price of mortgage or rent payments, shelter is a basic expense. It is usually in the best interest of consumers to purchase a home because the monthly payment can go to savings once the mortgage is paid in full. However, the minimum wage is not intended to be the sole source of income for a family of five. It is a living wage only for a single person without dependents and is insufficient for anything more. While it should be adequate to purchase a home, that does not mean a 2,500 square foot split level. A single-wide mobile home or one-bedroom condo is adequate housing for a single person without dependents.
Another obstacle to the living wage is that working until you become disabled or die is not in keeping with the dignity and honor of earning a living wage. Those earning a living wage need to be able to save for emergencies, major purchases, and retirement just like everyone else. While the living wage should include some money to save with each payment, individuals could also choose to save their discretionary income and will be able to save the money spent on the mortgage once it has been paid in full. Being able to save is a major component of a living wage.
Drastically Cut Welfare
Welfare programs exist in large part as a safety net for low income earners. However, if the living wage covers everything, then there is very little need for Medicaid, section 8 housing, or SNAP benefits. The Church and other charities should be able to address the minimal need that does exist. The main groups that might need welfare under this program are people with disabilities and children living in poverty. Beyond this, most everyone should be self-sufficient.
Okay, maybe we can agree on what a living wage should do, but how much will it be, who will receive it, and how do we keep it from jacking up the cost of essential goods and services?
Pricing a Living Wage
Since the purpose of the living wage is directly tied to certain commodities and values, it would fluctuate with market conditions. Military pay and allowances work much the same way. For instance, a servicemember’s housing allowance in rural Georgia is different than in San Francisco. And the entire pay scale is updated annually to account for market adjustments. The federal living wage should work the same way. Create a “Living Wage Index” which includes the cost of food, clothing, shelter, communication, transportation, utilities, and basic insurances for a single person in the local employer’s ZIP code. Add 43% (or more if paying state and local taxes) to those essentials in the index to determine the living wage. This living wage includes 10% for giving, 10% for taxes, 5% for saving, 70% for essentials, and 5% discretionary income.
Eliminate Minimum Wage for Single Dependents
One way to minimize the associated payroll cost increase for businesses is to eliminate the number of people receiving minimum wage. Businesses know this and typically downsize to cut payroll when it gets tight. However, eliminating a minimum wage requirement for single dependents would allow businesses the freedom to cut payroll costs without having to lose as many employees. While there are full-time independent adults earning minimum wage, there are also a lot of teenagers and college students receiving it. Most of these individuals do not need a living wage because they don’t have bills and many of them are just working for the experience.
More businesses would likely employ teenagers and college students as low-wage apprentices, interns, and trainees if the minimum wage wasn’t such a deterrent. This arrangement benefits the businesses who have access to low-cost labor and the workers who receive valuable experience to help further their careers. The same arrangement is in place now, except many of the businesses offer these as unpaid opportunities to avoid paying for the minimum wage. Now they could earn some income for their labor. Such an arrangement also makes it possible for companies to hire more employees who need the living minimum wage. If a small business can only afford $50 an hour for labor, that means it can only hire three minimum wage employees. This may include a high school student and two independent adults. However, if they could work the high school student at $5 an hour (still better than an unpaid internship), then they could hire another independent adult at minimum wage.
There are two obvious drawbacks to this part of the plan. First, some high school students really need the money, at least under our present system. However, if we adjust to a living minimum wage for independent adults which covers everything, then a lot of those students will not have such great need. Second, some companies will probably try to hire only those exempted from minimum wage to keep costs down. However, most of these businesses will also need low-cost labor during the school day when students are unavailable. Also, they may discover that the maturity of an independent adult helps their team of students achieve greater success.
Arbitrarily doubling the minimum wage is a bad idea, but instituting a living wage for full-time single adults is a morally responsible decision. Doing so without crashing the economy requires an intentional, precise effort of a magnitude of which I doubt our legislative representatives are capable. However, it is possible. The above plan outlines a simple approach to reduce the number of people receiving the minimum wage, increase its effectiveness as a living wage, increase the tax base, reduce government entitlement expenditures, increase non-governmental and faith-based charitable work, and do it all sustainably. We can, and should, address this issue. Poverty is not a poor people’s problem, it is a national problem, and requires a national solution. We have the knowledge and the means to accomplish this. We are able, but are we willing?