My Simple Plan to Raise Minimum Wage

Time for a rare political post on this blog… As of 920 AM EST 25 November 2014 this is more or less a quick rough draft… I have to get to work.

I’ve got a Minimum Wage Increase Plan that I think could get easy bipartisan support.

In the US, the Federal Minimum Wage is $7.25/hr for non-tipped employees (last raised in 2009), and only $2.13 (last raised in 2001) an hour for tipped employees.  Had the Federal Minimum Wage kept pace with inflation, it would be $10.90/hr. Recent efforts to raise it would have had it raised to $10.10/hr (over two years), something that was opposed by 100% of the Republicans. I couldn’t find reliable numbers on where the tipped employee wages would be if it kept pace with inflation.  The US has one of the smallest minimum wages in the first world developed economies.

One typical argument against raising the minimum wage is that most people make above minimum anyhow. Of course when they talk about that, they are referring to the Federal Minimum Wage. Several states have minimum wages above the Federal Wage, and the people making that state’s minimums aren’t being counted when people argue that lots of people make above the minimum wage. Also, we have to keep in mind where minimum would be if it kept pace with inflation, and if you count all the people making less than that, then there is a huge percentage of Americans making below where it would be.

Another typical argument against raising the minimum wage is that places would have to raise prices. That’s a pure lie. They would raise prices, but “need” is an overstatement. The prices of goods and services went up already, that’s why the minimum wage workers need a pay increase, so they can keep up with the cost of living. Since the 1970’s only the top 20% of wage earners have seen any income growth due to cost of living increases, the bottom 80% have seen no growth or actual loss. While the prices of goods have gone up, so have corporate profits as employee costs haven’t kept pace with inflation due to the fact minimum wage wasn’t keyed to inflation in the first place.  Would raising the minimum wage result in price increases? Yes, because corporate greed to maintain profits at current levels rather than levels they used to be at, they’d still make huge profits even without price increases, but they prefer to maintain modern profit levels. Those price increases generally offset the raises.

So the question becomes how to raise minimum without hurting business. A drastic raise from $7.25 to just the planned $10.10 over two years would end up meaning far increased costs as their greed forces them to either cut employees and/or raise prices… probably both.  So we can do it more gradually, and that’s the focus of the plan, a far more gradual increase.

This new plan, while less fair to the American workforce overall, it in the end creates something that helps more people, doesn’t “hurt” American business and would help drive the economy forward by making sure more Americans have more money to spend. I realize it falls FAR short of a real minimum wage increase that is badly needed, but I think the plan is easily passable and does better than the present battles by actually doing more.

The Plan

First we need to spend a moment talking about inflation. While the consumer price index is a poor indicator of cost of living (for example in 2009 it actually went down, because gas prices went sharply down and because the housing market crash falsely made the rent rates go down), it’s sadly the one most generally used and is probably the one we’d have to stay indexed to. Generally the rate is about 3.35%, and over the last 25 years about 2.92% (4.18 since the minimum wage was put in place and 2.62 the last 10 years). So we’ll say an overall average of about 3%+/-.

Now we set a “Minimum Wage Goal”. This is probably the first argument area, I’d say set it at where Minimum would be if it kept pace with inflation at $10.90, but we’ll split differences and call it $10.25 in 2014 dollars. Now we adjust the Minimum Wage Goal each year by inflation, never to be less than 1% and never to exceed 5% (so long as the overall average is above 3%). This is just a Goal and has no immediate bearing on Minimum Wage itself. It is just a Federally tracked Goal.

Now we get to Minimum Wage itself. Each year what we’ll call “The Base Minimum” increases with the rate of inflation, never less than 1% and never more than 5%, just like the goal. If the rate of inflation exceeds 5% than Congress may step in and force an increase on the Base Minimum. On top of the Base Minimum we add a 0.5% to 1% increase that we call “Adjustments to Goal”. Congress may increase the Adjustment to Goal if needed, but it and the “Base Minimum” together may never exceed double or more likely triple the actual rate of inflation for the indexed year. The Base Minimum and Adjustment to Goal are added together to create the “Federal Adjustment for Minimum Wage”, and that’s the amount the Federal Minimum Wage increase.

So let’s say inflation goes up 2% this year, the Base Minimum would go up 2% than the 0.5% Adjustment to Goal is added in, making Minimum go up 2.5% for that year. We then check the Federal Minimum Wage against the Minimum Wage Goal, if they are the same then the Adjustment to Goal is dropped.  Given that the gap between the two is decreasing at only 0.5% to 1% a year, that likely will take a very long time. Congress could, and indeed should, take care to adjust the Adjustment to Goal amounts every few years to make that time decrease.

Now increasing the Federal Minimum Wage is only the first part of the plan. We now look at the Minimum Wage Goal for the indexed year, and everyone making below that amount gets an wage increase equal to the Federal Adjustment for Minimum Wage. So using our example above, everyone making less than $10.25 would get that 2.5% increase.  This is a central key element of the proposal, as all those people making less than the Minimum Wage Goal are still below the goal, and they need a real adjustment to keep from falling behind. One of the key problems of minimum wage adjustments is that employers typically don’t adjust those above the line up with the new increase, meaning that new employees can end up making more than long established employees after a few annual review raises. So an employee making $9.25 in our example, would be increased 2.5%just like somebody who was making the actual minimum.

An optional part may also establish a table that says people making up to 50% more than the Minimum Wage Goal should also get raises equal to a percent of the Adjustment to Minimum Wage (AMW) that goes down rapidly depending on how far above the the Minimum Wage Goal they are. Say somebody makes 10% above the Goal, they might get say 70% of the AMW… so if the AMW was 2.5%, they’d get 70% of that increase (it’s too early to work that math out, lol). If somebody makes 40% above the goal, they probably only get 5% of the AMW. This might be codified, but perhaps employers get a tax bonus if they employ this rather than having to do it.

The beauty of the plan is that the actual cost increase year to year to business is only 0.5% to 1% on most years, something they can absorb without having to increase prices. Yes it does mean cutting into record high profits a tad bit, but it allows more money to get into the hands of people who actually move the economy.

States should be encouraged somehow to adjust for cost of living in their own states.

Now a quick word on Tipped Employee Minimum. That is chasing the Goal as well, but because it’s been so long since there’s been a real increase in their wages, it should be given a dramatic and immediate increase. I’ll go into details when I have more time to finish this post, but right now I’d say it should only be $2 to $3 less than Minimum itself, and it will eventually be equal to Minimum as it chases the Goal, but since it is so much further out it will take much longer to catch up. So that would mean, if Minimum is $7.25, the Tipped Minimum would end up being about $5.25 and then start following the plan outlined above with an increase equal to the AMW each year.