Supply and Demand for Labor as it

¶ … Supply and Demand for Labor as it Relates to the Minimum Wage

One of the most controversial issues in politics today revolves around the question of setting the minimum wage. Opponents argue that the market should set wage levels and if the minimum wage is too high, prices go up and consumption is discouraged. Proponents of raising the minimum wage stress the social injustice of low minimum wages but also point out that consumers who receive low wages have less money to spend and traditionally low wage workers spend a larger proportion of their salary than wealthier individuals. Raising the minimum wage could thus boost the performance of the economy.

In Jared Bernstein's recent article "The economics of a higher wage floor" from The New York Times, the author points out how there is a growing grass roots movement amongst fast food service workers to increase their minimum wage and better their working conditions overall. "The strikers themselves have articulated why they need higher pay. Many are single parents or second earners from low-income households working in an industry where the median wage is about $9 an hour (and they're not kids; 73% of low-wage restaurant workers are at least 20 years old). In speeches over the last few weeks, the president has argued for a higher minimum as a weapon against working poverty" (Bernstein 2013). At present, President Obama is advocating raising the federal minimum wage level to a relatively modest $9 and 18 states and Washington D.C. already have higher state minimum wages (Bernstein 2013).

In previous decades, advocates for raising the minimum wage for fast food workers stated that mostly teenagers staffed these jobs and did not need to live off of the income. However, economic shifts in recent decades indicate otherwise: as jobs grow scarcer across the economy and the technical requirements of jobs increase (coupled with a decline of high-paying, unionized manufacturing jobs in most areas of the country), more and more people are turning to minimum wage jobs in the service industry to stay afloat in a troubled economy. As expected, the industries most affected (like the restaurant industry) are the most resistant to calls to raise the minimum wage, arguing that a higher minimum wage will require them to lay off more workers and replace more workers with automated processes. However, given the cost-conscious focus of most fast food restaurants, the acceptance of automation (like online ordering) tends to be led by technological developments, which the companies will deploy regardless of the minimum wage. And the evidence is inconclusive as to whether layoffs are really correlated with an increase in the minimum wage.

Opponents also argue that the earned income tax credit is 'enough' compensation for the burden placed upon low wage workers. But proponents of raising the minimum wage state that while it is an "important pro-work wage subsidy that's actively lifting the living standards of low-wage workers from low-income families," it is really not 'enough' to prevent workers from falling behind (Bernstein 2013). Also, many workers have trouble meeting weekly and monthly expenses and a tax refund at the end of the tax year does not provide assistance in coping with these problems.

Independent of the pressures generated by a formal rise in the minimum wage, some retailers such as Costco have found that it actually behooves them to pay workers more money on an hourly basis: this increases the quality of the work they perform and also improves worker retention. Higher wages reduce escalating costs related to training new workers, given that low wages and poor working conditions tend to generate a 'revolving door' effect in terms of worker attrition. Poorly paid workers also tend to be less conscientious about serving a company that is treating them unfairly, and this attitude inevitably spills over in terms of how they treat customers. The average Costco worker "makes $22.82 an hour, gets health benefits and a pension plan" (Fox 2013). In stark contrast, the median wage of a fast food worker is $9.05 an hour "or about $18,800 a year" and the current grass roots protests of fast food workers were lobbying for a wage of $15 an hour, still below what Costco pays (Fox 2013). Traditional fast food employees' hours are often kept to a level below that of full time quite deliberately so the company will not have to offer benefits.

However, critics of the Costco model point out that Costco tends to target more affluent shoppers and not all consumers can afford its $55 annual membership fee. This high-wage business model may not be sustainable for all enterprises. Regardless, "sales at Costco have grown an average of 13% annually since 2009, while profits have risen 15%. Its stock price has more than doubled since 2009. During the same period, discount retailer Wal-Mart's sales grew an average of 4.5% each year, profits rose 7%, and its stock price increased 70%" (2013).