The Path to Prosperity

The Case for a $21.50 Minimum Wage

Since its implementation in 1938, the federal minimum wage in the United States has changed based on economic conditions. Initially, the minimum was only $0.25 per hour, increasing to reflect changing economic conditions. The mid-1990s saw the most recent significant amendments, with the minimum wage rising to $4.75 per hour in 1996 and then $5.15 per hour in 1997. Today, despite the astronomical cost of living, the federal minimum wage is only $7.25 per hour, established in 2009. The minimum needs to keep pace with inflation or productivity growth. Due to this, there have been growing calls to increase the minimum wage to $15 or higher.

This article proposes a higher minimum wage based on sound logic and evidence. It undertakes a comprehensive analysis of the potential impact of raising the federal minimum wage to $21.50, using Michigan as a case study. By focusing on the Mitten State, where the cost of living is slightly below the national average, this research aims to understand the benefits and challenges of such an increase thoroughly. The significance of this study lies in its potential to inform policy decisions and shape the economic landscape for workers, businesses, and the broader economy.

Economic Landscape in Michigan

Notably, Michigan’s cost of living is lower than the national average. Specifically, we are 4% below the rest of the nation. Our housing is considered more affordable, costing 10% less than in other states. Utility costs are also marginally lower, at 1% below the national average.

Michigan's current minimum wage of $10.10 per hour is notably higher than the federal minimum wage of $7.25 per hour. However, this apparent advantage is offset by the significantly lower subminimum wage for tipped workers in Michigan. Tipped workers are guaranteed a cash wage of $3.67 per hour, with the expectation that their total earnings, including tips, will at least equal the standard minimum wage. If this threshold is not met, employers must make up the difference. This disparity underscores the need for a higher federal minimum wage.

Now that you know Michigan’s place in this Technofeudalist dystopia, let’s discuss historical trends around the minimum wage.

Historical Perspective

The federal minimum wage in the United States has undergone numerous adjustments since its introduction in 1938. Originally set at $0.25 per hour, it was designed to provide a living wage for workers and stimulate the economy by increasing purchasing power. Over the decades, the minimum wage saw periodic increases to address inflation and cost of living adjustments. As mentioned previously, significant changes occurred in the 1990s, with the minimum wage rising to $4.75 per hour in 1996 and then to $5.15 per hour in 1997. However, the last federal increase was in 2009, when it was set at $7.25 per hour. Despite these increases, the minimum wage has not kept pace with inflation, decreasing real purchasing power for minimum wage workers.

Research indicates that if the minimum wage had kept pace with productivity growth since the 1960s, it would be approximately $21.50 per hour today. This gap highlights a significant disconnect between the productivity gains of workers and their compensation. Workers generate more value as productivity increases, but their wages have yet to reflect this increased value proportionately. The Economic Policy Institute (EPI) notes that today's economic disparities would be less pronounced if the minimum wage rose with productivity. This disparity underscores the argument for raising the minimum wage to reflect workers' contributions to the economy accurately.

The Economic Impact of Raising the Minimum Wage

Raising the minimum wage to $21.50 per hour would profoundly impact workers, particularly those in low-income brackets. The most immediate benefit would be a significant increase in annual earnings. For a full-time worker, this would translate to a yearly salary of approximately $43,000, substantially higher than the current earnings at the federal minimum wage. This increase would reduce reliance on government assistance programs, as more workers could afford necessities such as housing, healthcare, and education without external aid.

The impact on small businesses is critical in the debate over raising the minimum wage. Higher wages mean increased payroll costs, which could strain small companies operating on thin margins. However, studies have shown that higher wages can reduce employee turnover, increase productivity, and increase job satisfaction. These benefits can offset some of the increased costs. Additionally, businesses may need to adjust their pricing strategies and operational efficiencies to manage the transition effectively.

Increasing the minimum wage can stimulate consumer spending, as workers have more disposable income. This boost in spending can drive demand for goods and services, potentially leading to economic growth. Isn’t that what you, Ferengi, want? Economic Growth. According to research from the Federal Reserve Bank of Chicago, raising the federal minimum wage can positively impact the GDP by increasing aggregate demand. This ripple effect benefits not only the workers receiving higher wages but also the broader economy, as increased spending supports businesses and can lead to job creation.

Social and Economic Outcomes

Raising the minimum wage to $21.50 per hour can significantly reduce poverty levels. According to the EPI, higher salaries can lift millions of workers out of poverty by providing them with a livable income that covers essential expenses. When workers earn more, they are less likely to rely on government assistance programs, which can also alleviate the financial burden on public resources.

Higher wages directly improve workers' quality of life by increasing their purchasing power. With a minimum wage of $21.50 per hour, workers would have better access to healthcare, education, and housing. This improvement can lead to healthier lifestyles, higher educational attainment, and more stable living conditions. Additionally, higher income can reduce financial stress, leading to better mental health and overall well-being.

Examining similar wage increases in other regions or countries provides valuable insights. For example, several cities in the United States, such as Seattle, have implemented higher local minimum wages and have seen positive outcomes. In Seattle, the minimum wage increase to $15 per hour led to higher earnings for low-wage workers without significant job losses. Internationally, countries like Australia and Germany have higher minimum wages than the U.S. and report lower poverty rates and better quality-of-life indicators for their workers. These examples suggest that raising the minimum wage can lead to broad social and economic benefits without the detrimental effects often predicted by opponents.

Counterarguments

One of the primary concerns regarding raising the minimum wage is the potential for inflation. Critics argue that higher wages could increase prices for goods and services as businesses pass on the additional labor costs to consumers. However, research indicates that the inflationary impact of raising the minimum wage is relatively modest. A study by the EPI found that even under a worst-case scenario, the overall effect on inflation would be minimal. Furthermore, higher wages can enhance productivity, which can help mitigate inflationary pressures.

“Even under a worst-case inflation scenario where every penny in extra pay that results from moving the federal minimum wage to $15 by 2027 is passed on in the form of higher prices, the result would be a five-year stretch of inflationary pressure equal to 0.1% per year (or about 1/100th of the increase we’ve seen since 2021), then the inflationary effect would return to zero.”

Inflation, minimum wages, and profits, Josh Bivens (cited above)

Another common argument against raising the minimum wage is the fear that it could lead to job losses. Some businesses may reduce their workforce or cut hours to offset the increased labor costs. However, evidence suggests that moderate increases in the minimum wage do not result in significant job losses. A comprehensive study published in the Quarterly Journal of Economics found that increases in the minimum wage had little to no effect on employment levels in low-wage jobs. Higher wages can also reduce employee turnover and increase productivity, offsetting business costs.

Small businesses often operate on thin profit margins, and increasing the minimum wage could pose significant challenges. To address these challenges, various mitigation strategies can be employed. One approach is offering small businesses tax incentives or subsidies to help them absorb the increased labor costs. Another strategy is to gradually phase the wage increase, allowing businesses time to adjust. This gradual approach can help small businesses plan and implement operational efficiencies to manage the transition effectively. However, the longer this period is, the more likely another increase will be needed and warranted.

Consider these potential challenges and counterarguments. Raising the minimum wage to $21.50 per hour can be achieved with careful planning and targeted support for small businesses. The benefits to workers and the broader economy can outweigh the concerns, leading to a more equitable and prosperous society.

Policy Recommendations

A phased approach to implementing the $21.50 minimum wage is the best option to minimize the impact on businesses and allow for a smoother transition. This approach involves incrementally increasing the minimum wage over a set period, such as five to seven years. For example, starting with an increase to $15 per hour in the first year and gradually raising it by $1.30 each subsequent year until reaching $21.50. This gradual increase allows businesses time to adjust their pricing strategies, improve operational efficiencies, and plan for the increased labor costs without drastic disruptions.

Recognizing the unique challenges small businesses face, it is essential to provide targeted support during the transition to a higher minimum wage. Policies could include tax breaks or grants specifically aimed at small businesses to help offset the increased labor costs. For instance, offering a temporary tax credit for small businesses that could help cover a portion of the wage increase for a specified period. Additionally, providing access to low-interest loans or grants for businesses investing in technology and training to improve productivity can further ease the financial burden. Focusing on small businesses is paramount, as small companies are far more vital to our communities than large corporations.

Establishing a robust monitoring and evaluation mechanism is crucial to assessing the impact of wage increases and making necessary adjustments. This could involve setting up a federal or state-level task force that tracks vital economic indicators such as employment rates, business closures, consumer prices, and poverty levels. Regularly publishing these findings can help policymakers make data-driven decisions and promptly address unintended consequences. Additionally, implementing feedback loops where businesses and workers report challenges and successes can provide valuable insights for fine-tuning the policy.

Adopting these policy recommendations can effectively manage the transition to a $21.50 minimum wage. This will maximize the benefits to workers and the broader economy while mitigating potential business challenges.

The analysis of raising the federal minimum wage to $21.50, using Michigan as a case study, reveals several critical insights. Michigan’s lower cost of living and higher-than-federal minimum wage highlights the disparity in wage standards across the U.S. Historically, the minimum wage has failed to keep pace with inflation and productivity, resulting in diminished worker purchasing power. Raising the minimum wage to $21.50 would significantly increase annual earnings for low-income workers, reduce reliance on government assistance programs, and stimulate consumer spending, thereby driving economic growth. Although there are concerns about inflation, job losses, and the strain on small businesses, evidence suggests these impacts can be mitigated through gradual implementation, targeted support for small businesses, and robust monitoring and evaluation mechanisms.

Let me know what you think. Don't forget to like and share.

I also write fiction stories! Check those out here.