Hidden costs of income disparity


South Bend Tribune
By: William P. Hojnacki
May 10, 2014

Why should I care if the federally mandated minimum wage is raised from the current $7.25 per hour to $10.10 per hour or not? I care because what happens to the working poor in this country has both a direct and an indirect impact on me and other members of the middle class.

Opposition to increasing the minimum wage comes primarily from business owners, corporation managers and a stable of well-off fiscal conservatives who argue that an increase in the minimum wage would be bad for the economy. That such an increase would also damage their bottom line is seldom mentioned.

The argument against raising the minimum wage is that it will increase consumer prices and cost jobs. Most economists agree, although there is no agreement as to how many jobs would actually be lost or what the impact on the prices of consumer goods and services might be.

There are places in the United States today such as North Dakota and elsewhere where the minimum wage is not an issue; places where the demand for labor exceeds the labor supply and thus companies must pay much more than the minimum wage just to survive. And there are a few states that already have a minimum wage higher than $7.25 per hour.

There are no data that indicate that businesses in places where the prevailing wage, is, for whatever reason, higher than the federally mandated minimum wage fare any better or worse than businesses elsewhere.

Still, there is little doubt that the minimum wage will contribute to a loss of some jobs. Labor costs are part of the cost structure of any business. If labor costs increase, for whatever reason, a company needs to account for them. It may mean increasing prices, and/or reducing employment or in extreme cases it may contribute to some companies going out of business. What needs to be kept in mind, however, is that businesses of all sizes come and go every day for a variety of reasons and the cost of labor is usually not the primary reason for a business failure.

Although they are largely hidden, the socio-economic costs to the middle class of the current minimum wage are very high. Simply put, $7.25 an hour is not a living wage. Currently a single person is hard-pressed to survive at this level of income without outside assistance, and it is impossible for a family to do so. In most cases this outside help comes from the tax paying public; e.g. the middle class.

The most obvious cost to us is that the working poor still need food, clothing and shelter and need assistance to get all three, and it is their kids who qualify for free or reduced cost school lunches. And, because minimum wage jobs seldom provide health insurance they require the public's help to secure adequate health care; either through Medicaid, if they qualify or, if they do not, by repeated visits to hospital emergency rooms. It is the middle class who pays for all of this and more.

Less obvious costs include people eating unhealthy diets that can often lead to chronic conditions such as high blood pressure and diabetes and tending to live in unstable, crime ridden neighborhoods with inadequate schools and erratic public services. It is the middle class that gets billed for improving public services and suffers the consequences of poor public schools.

There are other societies that do a much better job of dealing with people at the lower end of the economic spectrum than we do. Examples include the island of Bermuda and countries of Scandinavia. Although taxes are admittedly high they are far more equitable than here and these countries still have their share of millionaires and billionaires.

These countries succeed in supporting their working poor for two reasons. One is that they have established a strong social-economic safety net that provides for basic needs of everyone. The other is that they pay a living wage to everyone who works. We should as well.


About this Entry

This page contains a single entry by CFED published on May 12, 2014 4:36 PM.

Paul Krugman: American inequality isn't about education or opportunity -- it's about oligarchs! was the previous entry in this blog.

High schools are lacking personal-finance education is the next entry in this blog.

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