More Money, More Problems?
President Obama has called for an increase in the federal minimum wage from $7.25 an hour to $10.10 an hour. California’s minimum wage went up to $9 per hour in July, and will go up to $10 per hour in 2016. Mayor Eric Garcetti has proposed gradually increasing the minimum wage in Los Angeles to $13.25 per hour in 2017. A measure recently passed in Los Angeles that will increase the minimum wage to $15.37 for all hotel workers at hotels with at least 150 rooms by July 2016.
These minimum wage changes have sparked debate nationwide. Seattle has already approved a minimum wage increase to $15 per hour, while some residents of San Francisco and Portland are hoping to do the same.
Labor union leaders say these minimum wage increases will increase the quality of life of low wage workers.
“Raising the minimum wage is a worthy pursuit,” said Rachel Torres, a research analyst for Unite Here Local 11, an L.A. Based union, “but I don’t think anyone can say with a straight face that by working $9 an hour you can support yourself, let alone a family. It means living paycheck to paycheck and really struggling to pay rent. Food prices and gas prices have gone up exponentially, while wages have stagnated.”
But an increase in wages doesn’t come without consequences, according to Dr. Glen Whitman, an economics professor at Cal State Northridge.
“As you raise the income of lower income people, the result of that is actually a reduction in the amount of social benefits and programs that are available to them,” Whitman said.
CSUN Economics Professor Shirley Svorny said a better way to help lower income Americans is through the Earned Income Tax Credit, or EITC. The EITC is a tax break for low income workers, designed to help them keep more of what they earned.
“If your salary goes up by a certain amount, if you lose benefits that are equivalent, you could lose money,” said Svorny. “Temporary aid to families, the food program, the nutritional program, and health care benefits, are means tested, so the poorer you are, the more money you get for those programs. So if you’re really trying to help the poor people in the U.S., the better way is to increase the EITC, not to increase the minimum wage.”
Svorny said most poor families don’t have anyone in the labor force, and most people who earn the minimum wage aren’t poor. She said she questioned why the government is choosing to raise the minimum wage instead of increasing the EITC, if raising the minimum wage isn’t the best option for the poor.
“One answer is the government doesn’t have to pay for [a minimum wage increase], whereas if they wanted to increase the EITC, which would directly help the working poor, they would have to pay for it,” Svorny said. “This way, it makes it look like they are doing good.”
Some economists argue that increasing the minimum wage also leads to a loss of jobs, as company owners try to keep their labor costs down while being forced to pay more for labor.
“If you have two programs to choose between, [and] one of them will increase compensation but also has a good chance to reduce the number of jobs, [but] the other will raise compensation and is actually likely to boost the amount of employment, which is the obvious program to choose?” Whitman asked. “To me, the obvious choice is the one that has a positive effect on both fronts, and yet we have chosen the other one, which has tradeoffs.”
A Pew Research Center poll shows the majority of Americans support an increase in minimum wages. The U.S. income inequality rate is at the highest it has been since 1928, and may be one reason for the widely held perception that lower income Americans need help, and that the time has come for a minimum wage debate.
“This is a life and death matter,” Torres said. “This is not political maneuvering. Raising the minimum wage is not a cure-all by any stretch of the imagination — we need to think broadly and comprehensively to raise all boats — but I do think it’s a start. When folks have a couple extra dollars in their pocket, that’s the difference between paying their rent on time or not and having enough for groceries.”
Moderator: Courtney Wallace
Producer: Laura Camelo
Anchor: Calsey Cole
Reporters: Roy Azoulay, Andrea Bautista, Strongman Osom and Robert Zamora