Alternatives to the Minimum Wage: Advancing the Discussion Instead of Choosing Sides

My son wrote this for a college paper.  His logic seemed to make sense.

There has been a large majority of Americans who believe we need to raise our Minimum Wage to solve some of the economical and ethical problems this country is facing. Such problems include lifting low-income people out of poverty and helping many of them get out of an endless cycle of debt. It is believed that if we don’t help the low-income wage earners we have a significant risk of increasing the income gap which can have extremely negative impacts on society. It is believed that as the gap between the “haves” and “have nots” increases, the potential for civil unrest and a possible end to the American way of life also increases. The Democrats are focused on raising the minimum wage to $15 while the Republicans are focused on not raising the minimum wage. I believe that we as UTA students, can find answers that fall somewhere in the middle. We need to take care of our citizens and help close the income gap, but we can and should find solutions that address the concerns of both parties. We need solutions that don’t make you choose between Democrats or Republicans. We need solutions that are good for America.

Democrats want to raise the minimum wage to help keep hard working but unlucky low wage earners out of debt and low-income families out of poverty. The Republicans argue that raising the minimum wage will create other problems that will hurt low-income households in other ways. They argue that as soon as the minimum wage goes up the number of jobs available to them will go down. Doubling the minimum wage will be an extra labor expense to companies since they will have to pay more not only to minimum wage earners, but also to anyone who is currently making less than $15 per hour. This increase in expenses means lower profits for the companies. To compensate for lowered profitability the companies will either raise prices, reduce the number of available jobs, or both. So, raising the Minimum Wage could negatively impact low-income families by hitting them with higher prices and fewer opportunities to work. There are several alternatives that would address the concerns of both groups by providing some increase in minimum wage while easing the negative profitability impact to the companies.

The first alternative is to distinguish between the family and the individual. When the minimum wage was created in 1938, the goal was to make it a living wage, but not a living wage for a family of three but a living wage for an individual person (Worstall, “The 7 most Dangerous Myths About A $15 Minimum Wage” 1). Taking that into account, this would make the average modern day living cost in the US to be just under $10.10 per hour, which is still higher than what the Federal minimum wage is at now (Berman). So, let’s take it a step farther, during this time, around the 1940’s, a large percentage of the American work force were paid the minimum wage. That number had decreased in 1979 to 13% and continually decreased until finally in 2014 only 3% of Americans, working an hourly wage, worked at or below the minimum. Of that 3% only 37% are the major contributor to their family’s income (Haugen 1). This means that a large portion of minimum wage earners do not have a family in need of their support. So in order to satisfy both parties, one solution could be to keep the minimum wage lower for the individual, around $10.00, then raise according to whether the employee is married or has kids. A married person would receive an extra dollar on their minimum wage, and person with children would receive an extra dollar per child (up to three children). This not only provides more for families, it encourages marriage and family values, which might be more attractive to the right wing who currently oppose raising minimum wage. This would also be good for companies as it would help families, but have much less negative impact on their profitability.

Another alternative that reduces the negative impacts to company profitability yet still helps low-income individuals make more money is to distinguish between teens and adults. Raising minimum wage could actually be harmful to teens looking for a first job. Teenagers usually have very little job experience and in most cases the only thing they can put on their résumés is a simple award they won in middle school. It takes time and money for companies to train inexperienced employees, and there is additional challenges caused by the high likelihood they will make a lot of mistakes before they get it right. This makes it quite a risk and hassle for employers to hire a young teenager. “In 2009, when they raised the minimum wage more than 600,000 teenagers’ jobs just disappeared.” (Dunkelberg). It becomes an endless loop of teens looking for job experience but are unable to find jobs because companies are not willing to pay the new higher minimum wage for an inexperienced teen. A solution to this challenge is to not raise the minimum wage for anyone under 18 years of age. Inexperienced teens get paid a rate that matches their ability and experience. Once they become adults; we are assuming here that turning 18 makes you an adult, then they get paid the new minimum wage. So once again, this alternative is good for everyone. Companies are better off because they don’t have to pay higher wages to inexperienced teens. Teens are better off because they have more opportunities to get jobs where they can gain experience and learn new skills, and the low-income wage earners who need to support themselves are better off, because they will get paid a higher minimum wage.

One other alternative that completely eliminates the negative profitability impact to companies and their need to cut jobs or raise prices, while also raising the potential income for low-income wage earners is a wage subsidy. “A wage subsidy adds dollars-per-hour to the worker’s wage, on a sliding scale that pays the highest subsidy for the lowest wage and phases out to no subsidy as the wage increases”(Cass). It would be completely funded by the government and is basically raising the Minimum Wage for the low-income earner without changing the profitability of the companies. It could be administered with vouchers given to the workers by the government or through the companies directly, similar to FICA withholding and tax filings, only in reverse.

The previous solutions were directly addressing changes to the minimum hourly wage. There is another solution that helps increase the annual income of low-income wage earners but is administered through the government and doesn’t involve the companies they work for. It consists of increasing the funding and amounts paid for the Earned Income Tax Credit, a program that already exists and is expected to benefit 26 million households by providing more than $60 billion dollars in tax credits in 2015(Tax Policy Center).

The Earned Income Tax Credit or EITC was proposed in the 1970’s, signed by President Ford and then expanded by President Regan (Hungerford and Thiess). The main idea behind the EITC is to provide an incentive for those in poverty to work harder and longer hours. The EITC comes in the form of a Tax Credit and requires families to be aware of it and to be able to claim it when they file their annual tax returns. The amount paid through the EITC changes based on marital status and number of children. The amount of the tax credit works on a sliding scale based on the amount of income they earn. An individual or family could have received a tax credit up to $6,143 in 2014 (Tax Policy Center). It is a great program that has many benefits. “In 2013, the EITC lifted about 6.2 million people out of poverty, including about 3.2 million children” (Policy Basics). It is based on willingness to work. Rather than raising the Minimum Wage, we could increase the EITC. There are two ways to increase the EITC, increase the number of low income people eligible or increase the amount given per person. In order to match a $10 dollar minimum wage it would need to increase by 50% and the EITC amount per family would have to double to match a $15 Minimum Wage. The pros of the EITC are that it doesn’t directly impact businesses so it doesn’t negatively impact hiring levels and prices. Some of the negatives of the EITC include that is it is only paid at the end of the year so it doesn’t help low-income wage earners on a daily basis. Also, people don’t necessarily understand it or how to apply for it on their taxes so without professional tax help they can miss out on the opportunity.

The blog, “A False Choice”, suggested that a good compromise solution might be to combine both raising the minimum wage and expanding the EITC, but both by lower amounts. By doing this you get all the benefits of both while making sure that everyone who is in need is covered.

The solution to closing the income gap and ending the Minimum Wage debate isn’t to pick a side and argue until you win. The solution is to invite vibrant discussion, listen to other people’s concerns and points of view, and then craft solutions that help the most people possible. Both Democrats and Republicans have good ideas and reasonable concerns. Making everyone happy will be an impossible task. Rather than choosing sides and endlessly debating the merits of our own points of view, let’s find compromise solutions that although a little painful, we can live with and support. Let’s stop fighting to win as Democrats or Republicans and start finding a way to win as Americans and America.

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