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Should the Minimum Wage Be Increased?

The Ethics of Providing a ‘Living Wage’

We’ve heard a lot this campaign season about what the minimum wage should be. The federal minimum wage is $7.25 per hour. For most of us this is troubling because we can’t fathom someone trying to make ends meet on an annual salary of about $15,000. Some states have a higher minimum wage, such as California where it is $10 per hour. But, try living out here on $20,000 a year.

California is frequently a bellwether state with respect to workplace ethics issues. Exhibit A is the recently adopted law that mandates a minimum wage of $15 by the end of 2022. Under a deal reached with state lawmakers on April 4, the state minimum wage will rise to $10.50 on January 1, 2017 for businesses with 26 or more employees. Annual hikes will result in a minimum of $15 per hour in January 2022. California is the first state to lay out a specific plan to meet the $15 per hour goal by a designated date. I believe the process could be speeded up but about $31,000 per year sounds much better than $20,000.

We can argue the ethics of raising the minimum wage starting with the burden it may place on small businesses. Will it raise the cost of products and services so that consumers will have to pay more for the same item? Will the products and services be any better or is this just another way of taking from the (relatively) rich and giving to the poor? In all likelihood product appeal and functionality will stay the same because businesses will claim the higher wage cost must be offset somehow and raising the product cost may not be possible given global competition.

Small businesses do share more of the burden relative to larger businesses with respect to employment costs, health care, taxes, and over-regulation. These businesses have less of an ability to absorb these costs. Add to this the new overtime rules that will extend overtime protections to 4 million workers and we can see why economic growth is stagnant. It is difficult to invest in people, production, and processes when you are trying to keep up with the rising costs of running a business.

On the other hand, according to a 2013 study from the Economic Policy Institute, the bottom 60 percent of workers are earning less than they did 13 years ago. According to a 2014 report by the Center for Economic and Policy Research, black Americans — who have earned much higher average levels of education over recent decades — have lower chances of earning a living wage today than they had 30 years ago.

Not surprisingly, corporate America is following Milton Friedman’s admonition: “A corporation’s responsibility is to make as much money for the stockholders as possible”. Who can argue that stockholders have done well – much better than main street America – since the great recession? Still, the benefits do not extend equally to the small business community. In fact, much of the earnings growth is in financial services sector, the same companies that gave us the great recession.

Immigration and outsourcing of jobs is an important factor as well with respect to the minimum wage. Higher levels of immigrants in the workforce have kept minimum wages in check. The use of outsourcing has led to the same effects. Corporate America seeks to maximize share value through these and other techniques including moving company operations overseas. This is what has kept the minimum wage down.

I find the issue of what the minimum wage should be as both an ethical and practical one. On the one hand I do believe there is a fairness issue and that one corporate social responsibility is to ensure workers earn a sufficient amount of money to negate the need for added government assistance to survive, which might, admittedly, depend on the number of people in the household. Individual workers should be cognizant of their personal responsibility in this regard.

On the other hand, there are thousands of small businesses that struggle to meet their payrolls every pay period. That is why any change in the minimum wage must allow for state-by-state differentials and exclusions for businesses of a certain size. Small businesses need protection from increased wages that can drive them out of business with the result being a lose-lose situation.

The bottom line is the devil is in the details. As with most things that need to be addressed by our government, I am not hopeful. We have a habit of kicking the can down the road. Let’s just hope it’s not American families earning $15,000 to $20,000 per year that get kicked in the pants as a result.

Blog posted by Steven Mintz, aka Ethics Sage, on August 11, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at www.ethicssage.com.

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