Minimum Wage, Welfare, and Conservative Mythology

Separating fact from fiction in the minimum wage and welfare debates

Separating fact from fiction in the minimum wage and welfare debates

Since 2012, when President Barack Obama talked about raising the minimum wage in his State of the Union address, it has been a hot button issue that has stirred up emotion and rhetoric on both sides. Many people like to call America a “Welfare State”, though they fail to realize the direct relationship between living wages and welfare.  Despite political talking points and media hyperbole, there are some legitimate facts we should be looking at, from places where higher minimum wages have already been implemented. Real world examples should hold far more weight than anything your local politician can spout.

Minimum Wage

The minimum wage was designed to keep pace with the cost of living and inflation. As it becomes more expensive to live, real wages should change to demonstrate that. However, that is simply not the case. If we were to pay our low skilled workers the equivalent of the $1.60 per hour that was the minimum wage in 1968, that would be more than $10 an hour in today’s dollars. In the 1960s, forty hours a week at minimum wage was enough to support a family of three. Today, it barely affords enough for one person to survive. There is so much misinformation going on about the minimum wage.

We hear things like “Low-skilled employees deserve low wages“. Or that it will force low skilled workers out of the labor force. Many say that it will create an increase in overall prices, making products unaffordable. Conservative think tanks like the American Legislative Exchange Council (ALEC) claim it will decrease employment, that it will hurt job growth, it will kill small businesses. Other conservative groups like the Heritage Foundation claim that minimum wage workers are predominantly high school kids and people with little responsibilities. While there may be some grain of truth to some of these claims, there may be a statistic or two that agrees with some of these arguments, on the whole, these ideas have been almost completely disproven by real world situations.

Higher Wages Would Cause Price Increases

Ending the myth the higher wages will make products unaffordable

Ending the myth the higher wages will make products unaffordable

This is one that has been disproven in many different ways. First, we can look at the amount CEO pay has increased over the last few decades. Now, we can all agree that prices are higher overall than they were in the 1980s, but very little of the increase in price correlates with CEO pay. CEO pay since the 1990s has risen 400% while employee wages remain stagnant. Prices have not increased by 400% and considering the millions CEOs earn, such a high percentage increase is even millions more. If their wages were linked to prices, those dollar menu burgers we enjoyed in the 90s would now cost $4 each.

Further proof that higher wages do not necessarily create significant price increases can be found in Australia and many European nations. In Australia, McDonalds pays its employees around $15 an hour, but Australians pay “anywhere from 6 cents to 70 cents extra for their Big Macs”. And despite McDonalds employees in Denmark making upwards of $20 an hour, the price of a Big Mac is just eighty cents more than in America, which is still a smaller percentage of their wage for one sandwich. This proves that companies can pay employees more money while still keeping prices at a reasonable rate.

Higher Wages Would Hurt Job Growth and Kill Small Businesses

Basic supply and demand would tell you that as the price of an employee increases, companies’ demand for employees should decrease. That is Economics 101, right? Well, this is just another reason why I say our current economic theories do not hold weight in reality. We have seen, in the real world, that increases in wages actually tend to create jobs because they lead to an increased demand for goods and services. When people have more money to spend, they will buy more products. That is an economic principle that has always been understood, and it has always worked well for us. And until Ronald Reagan changed the game with his trickle-down “voodoo” economics, it allowed us to prosper as a nation.

In fact, 4-in-5 economists agree that “the benefits of raising and indexing the minimum wage outweigh the costs” when it comes to the job market. If you look at nations with higher minimum wages than America, they actually tend to, on average, have lower unemployment rates than we do here. You may have read an article about how Seattle’s decision to increase wages to $15 an hour is killing jobs. I know I’ve seen at least a dozen articles making the claim, from Forbes to Fox News. The only problem here is, it is just not true.

First, the new wage is to be phased in incrementally over a period of years, not immediately. There is not one economist who will argue that a slight increase in wages kills businesses. A jump from say, $9 to $15 an hour may cause problems, and that is why that is not happening. A jump from $9 to $11, like the jump Seattle took in April, should have no real significant impact on employment. There are some companies that chose to jump straight to $15, but they are all seeing positive returns on it in the short term.

A Seattle magazine recently shared an article titled “Why Are So Many Seattle Restaurants Closing Lately?” and attempted to blame the new wage for the closings. But upon further inspection, the article could not have been more inaccurate. Beside the fact that it is too early to tell the impact of the wage increase, the magazine specifically mentions seven restaurants that have closed. According to the LA Times, the owner of one restaurant claimed the closing occured because it was “located in the wrong neighborhood for its particular mix of bar space and atmosphere.” Another restaurant closed due to the fact that the owner could not give it enough attention, as he has three other restaurants in the city and is opening two more. So in this case, once again, wage has nothing to do with the closing. A third restaurant closed because it turned out to be too big for the clientele at its location. The final three are not closing at all, but are getting new chefs because their old boss is moving to Spain to join his partner.

Basically not one restaurant in the article is closing due to having to pay higher wages. As for killing small businesses, that is an unfounded statement backed by no real facts or stats. The majority of small businesses actually pay more than minimum wage. According to Think Progress: “The majority (66 percent) of low‐wage workers are not employed by small businesses, but rather by large corporations with over 100 employees.” Also “The three largest employers of minimum wage workers [are], Walmart, Yum! Brands (Pizza Hut, Taco Bell, and KFC), and McDonald’s.” Furthermore, a June, 2014 survey showed that more 60% of small business owners support increasing the minimum wage to $10.10:

“Small business owners believe that a higher minimum wage would benefit business in important ways: 58% say raising the minimum wage would increase consumer purchasing power. 56% say raising the minimum wage would help the economy. In addition, 53% agree that with a higher minimum wage, businesses would benefit from lower employee turnover, increased productivity and customer satisfaction.”

The Minimum Wage Only Affects Teenagers and People with No Responsibility

Who is helped by the minimum wage?

Who is helped by the minimum wage?

I know you have heard the argument that only teenagers benefit from higher minimum wage. It has been repeated over and over again. But it is not currently, nor has it ever been, the truth. According to the Economic Policy Institute (EPI):

“87.9 percent of those affected nationally by increasing the federal minimum wage to $9.80 are 20 years of age and older. The share of those affected who are 20 or older varies by state, from a low of 77.1 percent in Massachusetts to a high of 92.4 percent in Florida (and 93.9 percent in the District of Columbia).” Also, “more than a third (35.8 percent) are married, and over a quarter (28.0 percent) are parents.”

In fact, almost half of minimum wage earners are adult women.

Low-Skilled Workers Deserve Low Wages

This is the one I hear the most. “Why should the person who messed up my burger make $15 an hour”? And that is a reasonable question, with many answers. The first is that this type of low skilled employee has always been able to maintain a living wage while working forty hours a week. Another reason is nobody saw a problem with the $1.60 minimum wage in the 1960s. It helped create prosperity throughout the nation. Today’s equivalent of that wage would go a long way toward making us a prosperous nation again.

Ford Motors was famous for paying their workers twice what was considered a living wage. Ford paid employees more than $5 an hour, almost double the $2.75 that was considered a living wage. Henry Ford thought it was important to keep his employees happy and reduce turnover. He also thought it helped stimulate the economy. He was right on both counts, and that is why people say he was a major facilitator in creating a booming American middle class.

But the fact is that these workers were not highly skilled. Almost none had college degrees, and many didn’t even finish high school. This was the first job for a majority of workers at his plants. The job consisted of menial tasks, and each person had an individual duty of putting one part together on the assembly line. Mostly anybody could do that work today, regardless of skill or education. And even though Ford paid his low-skill employees as much as he did, his automobiles were still reasonably priced. That is actually common through our economic history, where low skilled workers made living wages. It all changed in the 1980s when Reagan sold us out to the corporations.

There was once a time in our country where one full-time forty hour a week paycheck, even at or close to minimum wage, was enough to support an entire family. Unskilled factory workers or grocers at the supermarket made enough money to own a house. Now, two paychecks above the minimum wage is barely enough to keep a family above water, let alone own property. And anybody who complains America is becoming a welfare state should be in favor of a wage increase, since most of the welfare we put our tax dollars into goes to assist employees of multibillion dollar corporations.

Instead of saying “People with no education, little skill don’t deserve $15 an hour” say “They absolutely deserve that much. And I, with an education and job skills, deserve a lot more than what I am making”. Do not sell yourself short. You are probably worth a lot more than you are being paid. And a higher minimum wage will, in time, increase wages across the board. Do  not drink the low wage kool-aid, as you are only doing it against your own best interests.

Welfare

Our social safety net has helped keep millions of hard working Americans out of poverty. Yet still, some people see no need for it. There are claims that people are lazy. They are dependent on government. They can stay on welfare for years. They can make more money suckling the teat of the taxpayers than they would if they worked. Some claim that welfare fraud is rampant. But any facts or studies that show this trend are from biased, conservative sources like the CATO Institute. And most of the have been debunked by unbiased sources. And they ignore the reasons why some people end up needing temporary assistance in the first place.

Welfare Recipients Are Lazy

Breakdown of who receives welfare

Breakdown of who receives welfare benefits

We have all heard how lazy the people on welfare are. And yes, maybe we all know one or two lazy people who collect and should not. But that is such a small percentage of people who receive government assistance. According to the Center on Budget and Policy Priorities about 91% of all welfare recipients are either elderly, disabled, are single parents, or actually work at least part-time. And to take that a step further, according to a study by the University of California, Berkeley:

“56% of federal and state dollars spent between 2009 and 2011 on welfare programs — including Medicaid, food stamps and the Earned Income Tax Credit — flowed to working families and individuals with jobs. In some industries, about half the workforce relies on welfare.”

And while 52% of fast food workers receive welfare, other more prominent professions also need help from time to time. For instance, according to the Wall Street Journal, 48% of home care workers receive government assistance. Along with that, 46% of child care workers and 25% of college faculty also make so little that they need government assistance. These are not lazy people looking for handouts. They are hard working, highly skilled individuals in most cases.

People Stay on Welfare for Years

The idea of the “Welfare Queen” receiving lifetime assistance for her seven children is a completely false stereotype, as was demonstarted by the people who are actually on welfare. This stereotype ignores the people who really do need government assistance. A large portion of people on welfare only receive it short term, in the event of an emergency. In fact, according to the Urban Institute, about half of all welfare recipients are off welfare within the first year, with some enrolled for a few months. About three quarters of recipients are off welfare within two years. There are some people who stay on welfare and milk the system, but the percentage is so small that it would actually cost more to combat it than they would save by eliminating those people from the program.

Welfare Fraud is Rampant

Welfare Misconceptions

Welfare Misconceptions

People think more than a quarter, or 27% of welfare claimed is fraudulent. If this were true, we would have reason to be upset. However, it is just another misconception being pushed, without factual evidence, by conservative think tanks and politicians. The truth is, fraud accounts for less than 1% of all welfare claims. And since welfare only takes up 3% of our budget, not the 41% that people assume, fraud only accounts for .0021% of our budget, or $21 for every $10,000 spent.

Now, nobody is claiming welfare fraud does not happen. We all know a person or two receiving assistance that should not be. The lady on he iPhone at the grocery line using an EBT card. The guy with the Jordans who hasn’t ever had a real job. But the percentage is so small that it does not affect our budget, and most of these people are figured out rather quickly. Such a small amount of fraud is no reason to wipe out the entire program. Credit fraud happens at a much higher rate, and I don’t hear anybody saying wipe out the credit system. Well, not because of fraud anyway, but that is a different topic for a different time.

People on Welfare Make More Money Than Those Who Work

According to Rep. Glenn Grothman (R. Wis), “A single parent with a couple kids can easily get $35,000 a year in total benefits between the health care and the earned income credit and the FoodShare and the low-income housing and what have you. … That’s after taxes.”

Unfortunately, the data he was using to make this point, that he obtained from the CATO Institute, was completely off. In order for his statement to be true, Wisconsin residents would have to fit the characteristic to receive funding for about a dozen different reasons. These are characteristics that less than 300 people in a state of almost 6 million, would actually fit. Basically the numbers are fraudulent.

In reality, the average single person, who is not elderly or disabled, and has no children will receive closer to $10,000 a year. If you are a single parent with a couple of kids who are receiving financial aid for college tuition, you may approach that $30,000, but once again, that is less than 1% of 1% of all welfare recipients.

Everybody, at some point in their life, needs help, assistance from somebody. We, as a society, need to stop turning people who receive welfare into the villian. Most of the time they are the victim. They are the victim of companies who do not want to create jobs, or who do not want to pay living wages. They are the victim of a faulty public school system that did not give them the education they need to succeed in the real world. They are a victim of trickle-down policies put in place by conservatives in our government. Sometimes, it is just a lazy, no good mooch, but by and large the people who get help are hard workers who do not want to be on welfare, who would much rather work and contribute to society. And if they need a little help, we as Americans should be happy to help our neighbors.

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