Sen. Warren and End of the Minimum Wage Debate
Jeannette Wicks-Lim: Research shows that a rise in the minimum wage does not cause job loss; Sen. Elizabeth Warren questions food industry reps who claim it does
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore. And welcome to another edition of The PERI Report, this week with Jeannette Wicks-Lim, who joins us from Amherst, Massachusetts. She is a assistant research professor at the PERI institute.
Thanks for joining us, Jeannette.
JEANNETTE WICKS-LIM, ASSISTANT RESEARCH PROFESSOR, PERI: Hi, Paul. Thanks for having me.
JAY: So you spent a lot of time working on the minimum wage. What have you been working on this week?
WICKS-LIM: Well, one of the things I’ve been thinking a lot about is that because of the recent proposal by President Obama to raise the federal minimum wage to $9 an hour, I’ve been thinking about the debate that always, you know, gets rehashed each time the minimum wage proposal is put on the table. And every single time the minimum wage proposal has been put on the table, there is this back-and-forth argument about whether there are negative employment effects from raising minimum wage. There’s almost verbatim this fight about, you know, whether or not raising minimum wage is going to cost jobs, and despite the fact that there’s been a large amount of research in the recent years that has pointed towards basically finding no negative employment effects from minimum wage increases, and we still have the same old debate.
And so I’ve been thinking about, you know, what is it that would really help answer this question about whether or not there are job losses from raising the minimum wage. And one of the simple facts that we’ve come up with here in PERI in our research around the minimum wage is that actually when you look at the cost that businesses face when the minimum wage goes up, the costs are actually quite modest. And that’s what explains why there isn’t some big negative, you know, job loss that you can associate with any minimum-wage hike. This is something that we try to make clear but seems to get lost in the debate.
I’ll just give you a very concrete example. One year, in 2006, we looked at Arizona state minimum wage proposal, which was a 30 percent increase in the state minimum wage. At the time, it was $5.15, and it was being proposed to be raised to $6.75. This [incompr.] typical size of minimum-wage increase.
And what we did is we went and we looked to see how much would this cost businesses. We looked at what are the wages of workers at the time, how many hours did they work. We added that all up. We looked at payroll taxes and how much that would go up for employers. We looked at the raises that would go to workers who earn more than the–that would be earning more than the minimum wage, that is, more than $6.75 [incompr.] little bit of a boost from the minimum-wage increase. We added all that up and we compared that to businesses’ sales revenues. So that’s sort of the capacity, what they had to work with to cover these costs.
What we found is, for the average business in Arizona, that the cost increase would be less than 0.1 percent. And so if you want to think about it in real concrete terms, businesses, by raising their prices by less than 0.1 percent, would be able to cover all the costs of a minimum-wage increase of a size of 30 percent.
Now, people mostly think about restaurants as being the kinds of business that would be affected by a minimum-wage increase. So let’s think about a restaurant. What we found was, for restaurants, that the average restaurant would see their costs go up by about 1 percent of their sales revenue. So, again, if you want to think about it in real concrete terms, an average restaurant could cover the cost of a 30 percent minimum-wage increase by raising their prices by 1 percent. A $20 meal would go up to about $20.20. So if we can think about what the cost increases actually are for businesses, then we can think about how–you know, whether or not businesses would really face this large, unbearable cost increase that would then produce job losses.
And this is the type of issue that actually came up in a recent Senate hearing. And I was really interested to hear that Senator Warren–she comes from Massachusetts, from our state–bring up this exact same issue in an exchange with a restaurant owner. This was a representative of a restaurant in Connecticut.
ELIZABETH WARREN, U.S. SENATOR (D-MA): Dr. Dube, in the studies of what happens when minimum wages have been raised–and you’ve done the county-to-county matches–were restaurants included in the employers in the measurement of whether or not people were laid off?
ARINDRAJIT DUBE, ASSIST. PROF. ECONOMICS, UMASS AMHERST: Restaurants were one of the primary samples that we looked at because of the high incidence of minimum-wage workers. And, again, restaurant employment, in response to the kind of minimum-wage changes, did not respond on average.
Now, again, is it possible that a single employer didn’t lay some people off? Is it possible some employer didn’t actually expand? That is difficult to say. The point I’m making is: on aggregate in the restaurant industry for the kind of minimum-wage changes we saw, we did not see employment change noticeably.
WARREN: –is that when productivity has gone up and profits have gone up, that the minimum wage has in fact declined. And so the question I’m asking is not what the right dollar number is here, but really a very different question. When productivity increases, when profits increase, is there a reason that the minimum wage should not increase as well, in other words, that we all should not participate in this increased wealth in our country?
I was interested in your point about prices, and yours, too, Mr. Rutigliano. During my Senate campaign, I ate a number 11 at McDonald’s many, many times a week, and I know the price on that one, $7.19. According to the data on the analysis of what would happen if we raised the minimum wage to $10.10 over three years, the price increase on that item would be about $0.04. So instead of being $7.19, it would be $7.23. Are you telling me that’s unsustainable?
DAVID RUTIGLIANO, MEMBER, CONNECTICUT GENERAL ASSEMBLY: Senator Warren, not all restaurants are created equal. I’m in the full-service restaurant business. McDonald’s has efficiencies, and they operate completely differently than I do. I have many jobs, many jobs that pay well above the minimum wage. We have a retirement plan. We offer health insurance to our salaried employees. So my business is a little different. I can’t raise a $0.04 price. I mean, I don’t have–I don’t operate like a fast food restaurant. So I would hope that you at least appreciate the distinction.
WARREN: Well, I do appreciate the distinction, and I’m not going to be in the business of being a McDonald’s representative, but I think they would talk about also having some higher-paid jobs and some opportunities for management and advancement as well.
But I get your point. Maybe it’s only $0.04 on $7.19. But if your entrees are $14.40 (we’ll see how fast I can do the math), are you telling me you can’t raise your prices by $0.08?
JAY: So, Jeannette, what did you make of the exchange?
WICKS-LIM: So I think the really interesting thing to notice here is that Senator Warren poses this question, if we’re talking about very modest cost increases, not large cost increases, this is something that businesses could sustain. And what happened in the exchange is that the restaurant representative couldn’t respond directly to that question. Instead what he talked about was what would be the dire consequences of even larger price increases than what would be the cost increase from the minimum wage itself. So it seems that this whole question was sidestepped.
But I think what we really need to keep in mind, you know, just to keep, you know, really focusing on is the fact that these cost increases are modest. And so that really gets to the question of if these cost increases are quite modest, then should we expect large negative employment effects? And the answer is no. And that’s what the research bears out. And so I think it was really helpful to see this exchange at the Senate hearing to just, you know, confront the business, the restaurant representative with this question of what kind of cost increases are we talking about. We’re talking about small cost increases and how can you respond.
JAY: Isn’t there another part of this, too? Which is, I mean, maybe there is some point where, you know, raising the price of the restaurant meal that much more might mean people go out and buy fast food a little less often. And I think we should keep in mind, too, we’re not talking about little mom-and-pop restaurants here, you know, that maybe they may be affected more or less differently, but most of what’s at stake here is massive change, with thousands of thousands of employees and big profit margins. I mean, what I’m getting at here, if there is a point where they can’t just cover the cost of the increased cost of labor to raising their prices, well, so what? So their profits go down by that much. Well, I mean, why is the starting point of this argument is they have to maintain the same level of profitability?
WICKS-LIM: Right. Well, I mean, you know, the basic question–and I think it’s a valid concern–is, you know, if workers who are working [incompr.] are worried about their jobs. So we don’t want to create a situation where businesses are cutting into their profit margins so much that they are choosing to lay off workers or they’re choosing to close doors.
Now, certainly, your point is well taken is that in the amounts of minimum-wage increases that we’ve been talking about certainly don’t get us to that point. So I think the real question is is this point of, well, you know, we know what we can absorb in this economy. We know that we can absorb a 20, 25, 30 percent minimum-wage increase. What more can we do? Because clearly the minimum wage right now, $7.25, even the proposed $9 an hour minimum-wage proposal by President Obama, those wages are too low to sustain families. So what we need to be thinking more carefully about is how much more could we raise the minimum wage in order to find a sustainable wage for families.
JAY: Okay. Thanks for joining us, Jeannette.
WICKS-LIM: Thanks for having me, Paul.
JAY: And thank you for joining us on The Real News Network.
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