Jeannette Wicks-Lim: Santa Fe Raised their minimum wage 65% and employers didn’t cut jobs.

Story Transcript

JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore. And welcome to this latest edition of The PERI Report.

On Thursday, Walmart workers in 15 cities went on strike for better working conditions and higher wages. This follows last week’s strike in more than 50 cities of fast food workers also calling for a higher minimum wage.

Now joining us to discuss this as well as to dispel some myths surrounding these calls for a higher minimum wage is Jeanette Wicks-Lim. She’s an assistant research professor at the PERI institute at the University of Massachusetts Amherst, and she also writes for The New Labor Forum.

Thank you so much for joining us.

JEANNETTE WICKS-LIM, ASSISTANT RESEARCH PROFESSOR, PERI: Hi. Thanks for having me.

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NOOR: So, Professor Wicks-Lim, over the last year, really, we’ve seen these increased calls for a higher minimum wage by some of the lowest-paid workers around the country, and they have been viciously attacked in the mainstream media. Can you talk about some of the arguments that have been made against raising the minimum wage? And what kind of holes do you see in those arguments?

WICKS-LIM: Sure. I think one of the long-standing arguments against the minimum wage is the idea that any proposed increase is going to cost businesses too much, that it’s going to create a bit burden for the businesses, and what they will end up doing in the end is laying off workers or cutting back on workers’ hours because of the cost increases that these higher wages impose on them.

So one of the critical, I think, issues in this debate is really the question about how much do these minimum wage proposals actually cost businesses. And this is a number that we’ve been studying here at the Political Economy Research Institute for many years, really digging down into the empirical data to figure out what is the actual cost increase that businesses face when a minimum wage is proposed.

So just to give you a really concrete example, something that Bob Pollin has already spoken about here on The Real News Network is the proposal for a minimum wage to $10.50, a proposal that’s been put forward by Congressman Alan Grayson in Florida. And along with myself and more than 100 economists, we’ve signed a statement in support of it.

And one of the reasons why we have supported this call is that we can show that the cost increases to businesses are actually quite modest. So, you know, you mentioned that I wanted to go into talking about some of the myths around minimum wages. And I want to try to go through a simple example of why it is that when the minimum wage goes up, that usually the cost increase to businesses is quite modest. And I want to use a specific example of the fast food industry. Of course, this is, you know, where a lot of workers have been making demands for higher wages.

So for the specific proposal of $10.50, we did a careful look at what the cost increases would be for a typical fast food restaurant. So one of the myths about how much a minimum-wage hike would cost businesses is the idea that, well, if a minimum wage goes up, say, by 45percent, which is what would be the case for an increase from $7.25 [incompr.] that this cost would balloon by the same amount, by 45percent. In fact, what’s the case even for a labor-intensive industry like a fast food restaurant or fast food restaurant, that the costs that the businesses aren’t only labor costs, even, you know, the large majority just labor costs. There are a lot of different costs businesses have to take care of. So if you look at what the labor costs are for, say, a fast food restaurant, typically the wage that labor cost make up on the order of 25percent of business costs. So if you take the sales revenue that a fast food restaurant is bringing in about 25percent goes toward labor costs. So you’re certainly not going to see minimum wage of 45percent causing business costs to rise by the same amount. It’s going to be a much smaller fraction than that.

The other factor to keep in mind–and this goes to another myth about minimum wage hikes–is the idea that a minimum wage hike is going to result in all workers getting a raise equal to the amount of the minimum wage hike itself. So, again, a lot of times you’ll hear arguments against minimum wage increases and they’ll be something like an argument made that, well, a 45percent minimum wage hike is going to cause all wages to go up by 45percent. Now, that’s just not the case. What we’ve seen in the past with minimum wage hikes is that workers at the very bottom get amount of that minimum wage hike. You know, usually it’s even for those workers that they don’t get the full amount, because they’re typically making a little bit more than minimum wage that it currently is, in fact. And then workers who are earning something above the minimum wage get much, much smaller raises. So, again, if you look at the workers overall, you’re talking about raises that are much smaller than 45percent in the case of the $10.50 minimum wage. So you’re looking at 25percent of business costs going to labor costs, and then the average raise that goes to low-wage workers that would be affected by a $10.50 minimum wage, you’re talking about a raise that’s on average about, let’s say, about 15percent 16percent, and so the amount that the business costs would go up would fall yet again. So you’re talking about, you know, 25percent going down, you know, to a raise of–or being affected by a raise of 15percent, and that’s–you’re looking at about a 4percent cost increase for businesses when you’re looking at it as–relative to sales revenue.

So the other factor to keep in mind is that low-wage workers who are affected by these minimum wage hikes don’t make up the total wage bill. They make up a portion of that wage bill, because they’re earning lower wages and working fewer hours than workers who earn higher wages and work longer hours. So even with that, say, 4percent that I just said of business costs relative to sales revenue, you’re talking about something on the order of 60percent of that being what the minimum wage would represent in terms of the cost increase. So, again, trying to go through these calculations step-by-step, 60percent of a 4percent cost increase, you’re talking about something on the order of 2to 3percent of business costs going up relative to their sales revenue. So, you know, bringing it back home to something that people can really relate to is that this 2 to 3percent–.

NOOR: So, Professor Wicks-Lim, you cite in a recent piece in Truthout how the minimum wage raise in Santa Fe, New Mexico, in 2004 from $5.15 to $8.50 an hour, which is a 65percent increase–can you talk about what kind of impact that had on prices and low-wage employment?

WICKS-LIM: Yes. Well, in the case of Santa Fe, right, the minimum wage there, [incompr.] minimum wage was increased 65percent. And we did a similar study–actually, it was colleagues of mine here at PERI; I wasn’t involved directly in the study–estimated that the cost increase for the average restaurant relative to their sales revenue was going to be on the order of, I think, 3to 4percent. So, again, here, in the case of even a 65percent hike in the minimum wage in Santa Fe, you are looking at businesses taking on a cost increase of 3percent relative to their sales revenue. So that’s–if you think about something, you know, really concretely, the price of a restaurant meal needing to go up by 3percent, you’re talking about a very, very small change in prices. So, you know, this is an experience we’ve seen over and over again in the studies we’ve–in the different proposals we’ve seen is that the cost increases are really modest. And for the most part, these cost increases are so modest that the price increases are relatively–and can, you know, be relatively easily absorbed by consumers, and that the employment effect of these kinds of minimum wage hikes tends to be zero, that is, there’s no employment loss, which is the big threat that’s made about minimum wage hikes, that if minimum wage goes up, that employment will go down. And what the research has found over and over again is that this doesn’t appear to be case.

NOOR: And finally, just how many low-wage workers live in poverty today? And how many would escape poverty of the minimum wage was increased dramatically?

WICKS-LIM: Well, that’s a hard number to give you off the top my head. I can say that the average, the typical minimum-wage worker comes from, you know, poor, of low-income and moderate-income homes. And so if you look at this proposal of the $10.50 minimum wage, you’re talking about 45million workers who would be affected by a minimum wage hike of that size. You know, this is about a third of the workforce. And so if you’re thinking about a third of the work force being affected by such a proposal and that they come from modest-income homes, you’re talking about a really significant share of the working poor.

NOOR: Jeanette Wicks-Lim, thank you so much for joining us.

WICKS-LIM: Thank you for having me.

NOOR: Thank you for joining us on The Real News Network.

End

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