Question

Some economists and politicians argue that raising the minimum wage does a disservice to those it tries to help. They claim that businesses will resist a higher minimum wage by laying off workers, moving their businesses offshore, or just closing down. Some sympathetic to the plight of the poor claim that society should deal with poverty in a different way, such as through private charities. Most opponents of a minimum wage claim that workers are free to seek better paying jobs or to work harder to become more valuable to their employers. They argue that the market should decide the value of any sort of work to employers, just as it determines the value of those employers' goods and services. They claim that employers simply will not hire workers who are not worth the prevailing minimum wage, thus denying these potential workers an opportunity to start a work career. These critics point to teenagers as a perfect example of potential workers whom employers may feel are simply not worth the set wage.

Economists, politicians and others who favor raising the minimum wage consider failure to do so an exploitation of the poor and a moral wrong. They assert that in a perfect market economy, employers might pay higher wages to get and retain good employees. Since the market is not perfect, employees must be protected by minimum wage to prevent employers from paying artificially low wages that unjustly exploit the poor. Advocates of a decent living minimum wage offer evidence that raising the minimum wage adds more consumers to the economy and does not substantively increase unemployment. Minimum wage advocates point to companies like Costco that demonstrate that paying employees well results in loyal, productive employees.

                The ethical argument in support of minimum wage laws (Paragraph 2) is fairness-based and goes like this:

1.       Normative claim: It is unfair that people who work for a living live in poverty.

2.       Factual claim: Without minimum wage laws, working people are certain to live in poverty.

3.       Conclusion: Therefore, minimum wage laws are necessary for fairness.

There is also a second argument present in paragraph 2. This argument is not ethical, but economic.  

1.       Economic claim: Policies that stimulate economic growth and productivity should be encouraged.

2.       Factual claim: Living wages stimulate consumer activity and worker productivity.

3.       Factual claim: To assume living wages, there must be minimum wage laws.

4.       Conclusion: Therefore, living wages, which need legal backing, should be supported for their economic benefit.               

Let’s presume only a total idiot could disagree with the economic claim of the second argument. That does not mean only an idiot could disagree with the second argument itself. One could object to the conclusion (and therefore, the argument) by rejecting one of the two factual claims (most likely 3).

Look at the ethical argument. If you are going to defeat this argument, you must find fault with either the normative claim or the factual claim.  

If you disagree with the ethical argument in support of minimum wage laws, which claim do you reject and what is your argument against it?

If you agree with the ethical argument, defend the normative claim that it is unfair if people who work for a living live in poverty. Why is that a claim other people ought to accept?

Answer 1

This extract contains certain opinions on the ethics of raising minimum wage based on research and analysis of the economical impacts​. Before we dive into the details, let's establish the definition of minimum wage which is important to understand in the context of both economy and ethics.

Minimum wage is defined as the minimum amount of remuneration that an employer is obligated to pay the employees which cannot be reduced further based on individual contract or collective agreement. Majority of the minimum wage earners are from sociologically vulnerable groups - females, the old, the very young, immigrants, second-rate citizens, etc., and it hardly ever affects the regular citizens who would not be impacted by the minimum wage laws but ever so slightly. We will dive into the impacts later, but it's important to establish that the main argument is for the socio-economic benefits who have to support their daily livelihood based on minimum-wage.

Before proceeding any further, my stance on the argument is very clear - there needs to be an increase in the minimum wage and I will be projecting both the pros and cons of the same from an economic perspective and also on ethical grounds.

The average income of a minimum wage worker in a year is about $14,500. Wages can be calculated to as low as $279 per week - and this is before calculating payroll taxes. According to the U.S. Census Bureau, a family of four needs to earn approximately $23,000​ per annum to live above the poverty line.​ For a minimum wage worker, that is far from reality. There are nearly 8.9 million working adults employed on a full-time basis but unable to support their families out of poverty. This increases dependency on federal nutritional assistance programs to be able to provide for their families. What makes it worse is that most minimum wage jobs do not provide employee benefits like paid sick leave or health insurance which leads to the fact that minimum wage workers aren't able to afford even the basic health care required for healthy living and certainly cannot afford to fall sick as they will lose their hourly income without being able to pay for their treatment.

It was proposed by former President Obama to increase the minimum wage from $7.25 per hour to $10.10 per hour and ​index it to inflation in the market.​ Let's understand this further by defining the pros and cons of raising the minimum wage.

Pros:

• periodic increase in minimum wage allows the low-income level families to keep up with price inflation,
• increasing the available money in hand provides for the families to spend it back on the economy,
• increased wages and spending create more demand for jobs,
• ​seemingly significant impact on employee retention rates of businesses reducing the turnover, hiring, and training costs​,
• ​higher wages and lower unemployment increases tax revenues,
• lesser reliance on government relief programs.

Cons:

• employers with tight budgets might potentially lay off certain employees as they would not be able to afford the minimum wage,
• companies might choose to pass on the increased cost on the consumers,
• businesses might choose to freeze new higher programs,
• companies might choose to outsource labor-intensive work to countries with lower minimum wage standards.

Now let's explore the previous statement of raising the minimum wage and adjusting it to inflation through a hypothetical example:

A fast-food chain employer (let's assume a bagel store) employs mostly minimum wage workers basis the affordability. Let's assume the employer has one baker, two assistants and servers, and one manager to overlook the process. Before a minimum wage increase, let's say the servers earned $7.25 per hour, the baker earned $9 per hour and the manager earned $11.50 per hour. The total wages per hour for the business would be $35.

Now if the minimum wage increases to $10.10 per hour, it would be applicable to the servers but now the fee for the baker needs to be adjusted as he cannot earn lesser or equal to the servers. So let's increase the rate of the baker to $12 per hour which also results in the increase in manager's fee which could be at $14.50 per hour. With the increase in the minimum wage, the business would now be spending $46.70 on per hour wages which is an unaffordable increase for most small businesses as it would eat into the profits to an extent that the business can no longer afford to stay open.

​This is the point when the increase in minimum wage needs to be indexed with market inflation. With defined government measures, it would provide for more cash in hand for the minimum wage worker class to be able to spend more on their living - which would result in more business for our bagel store owner as that would be the ideal target audience for such businesses. This means more sales through an influx of higher wages which means more business to cover up the increase in the salaries being paid.

By setting a standard increase in the minimum wage, lawmakers would benefit the ​small-scale businesses who are more prone to laying off the minimum wage workers due to the unaffordability of the increase in wages. These employers, who create almost 50% of U.S. private-sector jobs, would be prepared to expect a small yearly increase in the minimum wage and plan accordingly. An increase in minimum wage (adjusted for the inflation they cause) results in raising the real income of most families (as compared to the poverty level). Only families that are able to make over 6 times the poverty rate would see a marginal decrease in real income if lawmakers raised the federal minimum wage. Given this statistic, some might argue that the greatest resistance to minimum wage increases is not the working poor, but rather the richest members of society.

In my opinion, minimum wage shouldn’t be analyzed just with an efficiency-increasing, cost-minimizing, profit-maximizing approach. The minimum basic needs (food, shelter, commute to work and to school) of the workers need not be the subject of a thorough and in-detail economic analysis. It is not fair or just to be favorable of the more powerful in the labor market where more importance is given to the bargaining and bidding power of the employers than the fate of the employees. I believe that the topic of increase in minimum wage should be approached with more of an ethical (moralistic) framework and not be looked only through the lens of macroeconomic implications.

"It is unfair that people who work for a living, live in poverty."