Living Wage in Rhode Island
Changing Minimum Wage Into Living Wage
When considering this complex process one will inevitability reach the problem of the poverty measure. Common sense dictates that minimum wage should at least let someone live above poverty, otherwise what’s the point. Okay, so there are some obvious points, it’s a way of sustaining a poor working class which is essential for a capitalistic society. But the argument here, is that government and society should be responsible for providing at least a living wage to the workers that fuel capitalism.
This all important poverty measure was created in the 1960s by an economic statistician called Millie Orshansky. She based this poverty measure off of two things, a family’s income and their resources. Income can be adjusted with inflation, but resources can not. When resources were thought of back then, it was primarily food (1/3 of a family’s expenditures were food in 1955). So, Orshansky took the 1955 food consumption survey and took 75 to 80 percent of the low-cost plan and multiplied that by 3 to make the estimate whole. So even by those standards it was 3/4’s of the lowest cost food plan, not average… lowest cost plan. So even in the 1960s it represented below a barely sustainable food plan.
Fast forward… according to the 2009 US Census the average consumer spent…10.6 to 13.9 percent on their expenditures on food. Basically, there are expenditures now, that either did not exist or were not considered essential for living back in 1950. Lets be real 2012 is nothing like 1950, cell phones, computers, TV’s did not exist, only the wealthy had cars, and health insurance, clothing and housing have all grown into a larger portion of our budget since 1950.
One of the biggest things is that the poverty measure needs to be updated, some work has been done to develop the Supplemental Income Poverty Measure, but there are still deficits.
Next, historically minimum wage has NEVER been enough to raise a family out of poverty. Check the nice folks at Oregon, http://oregonstate.edu/instruct/anth484/minwage.html. Amazingly, the last time that minimum wage even got close to the poverty line was back in 1968, and if you calculate for inflation it would be $10.04 in the year of 2010, so technically the government is paying less now then it was forty years ago.
What I’m purposing is that the Rhode Island government implement a living wage based on more updated and flexible poverty measures.
Okay so lets examine the two biggest criticisms;
1) Businesses will hurt.
Actually it’s been proven that when people have more money they spend more, and this actually increases business profits. There can also be a slight mark up in product cost to adjust for overhead expenditures. When taken into account this small markup is marginal compared to what economic benefits are stimulated. It’s also been proven that lower income individuals spend a lot more of their money on local goods, instead of the upper income individuals who typically invest their money in global goods and diversify. So, logically, more money will be fed back into the local economy, more so benefiting small businesses. The big businesses like Walmart or Mcdonalds can spread out the cost of raising their wages over the nation, this amount of money would equate to fractions of a percent of the company’s profits. Other beneficial factors, that research has proven, include more employee loyalty, which leads to less expenditures in rehiring (training, paperwork, processing, screening) and more efficient workers. (if you like your job and feel you have a steak in the company, you’ll probably work harder and better).
2) If wages increase the cost of everything else will increase.
Wages are only one contributing factor to increased prices. Others include manufacturing, transportation, equipment, rent, advertising, business location, income demographic of the community, employee recruitment and training. Several of these aspects can be improved by technology (manufacturing, transportation, advertising) and bring about cost reduction to equalize the wage increase.
Let’s take a case study of the fast food industry for a real simple example. There have been multiple studies done around the time of an increase in minimum wage across the nation. When wages were increased the cost of the product should logically increase. However, it has been proven that there was “little evidence of relative price increases in those establishments with larger mandated wage increases” (Katz & Krueger, 1992). There are also several other updated studies that show the same.
For everybody that has the time there is a good Q&A about the economic and societal benefits of a living wage located on this website, http://www.universallivingwage.org/ under the facts and myths tab on the left hand side.
Sources:
Card, D., & Krueger, A. (1994). Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania. The American Economic Review. 84:4. 772-793
Fremst, S. (2010). A Model Framework for Measuring Poverty and Basic Economic Security. Center for Economic and Policy Research. April 2010. 1-63
Katz, L., & Krueger, A. (1992). The Effect of the Minimum Wage on the Fast-Food Industry. Industrial and Labor Relations Review. 46:1. 6-21
Oregonstate. (2012). Minimum Wage History. Retrieved from
http://oregonstate.edu/instruct/anth484/minwage.html
Univerallivingwage. (2012). Universal Living Wage, Clearing the Air: Myths and Concerns. Retrieved from
http://www.universallivingwage.org/
United States Census. (2012). Income, Expenditures, Poverty, & Wealth. Retrieved from
http://www.census.gov/compendia/statab/cats/income_expenditures_poverty_wealth.html
