The Case for a Higher Minimum Wage: How Taxpayers Subsidize McDonalds

Alexandria Ocasio Cortez says that raising the federal minimum wage is about the pride that comes with work, and paying people what they’re worth. She thinks that the minimum wage is an issue about morality.

“All labor has dignity. And the way that we give labor dignity is by paying people the respect and the value that they are worth at minimum,” she says during an event advocating for a $15.00 federal minimum wage.

All due respect, but Ocasio Cortez is wrong.

There’s a more compelling, more economic, and more conservativeargument to be made for significantly increasing the minimum wage. That argument is about your tax dollars.

The reason we have a minimum wage is that without one, businesses would pay employees as little as they possibly could. Wage floors were initially put in place by Franklin Delano Roosevelt in 1938 to put an end to the widespread use of sweatshops, with a required hourly rate of twenty five cents. 

And we see the need for a minimum wage today: businesses pay workers the least they can while complying with wage laws. To do otherwise would be bad for profits. 

But the problem comes when minimum wage doesn’t match up with what’s called a living wage, the amount you need to lead a normal life. A living wage includes modest food, modest rent, transportation, and other needs that everyone has. 

Living wage changes by city and state, as well as how many children you need to account for (livingwage.mit.edu is an amazing resource for more information), but a single adult in Clackamas county needs to make about $14.50 an hour to make ends meet. 

There’s the rub. Oregon’s minimum wage is $10.75.

This is what we call a poverty wage, a minimum wage so low that you can’t live off of it. Seattle has a legal poverty wage ($11.50), and so does Los Angeles, Boise, New York City, and Tulsa, Oklahoma. Everywhere you can think of allows poverty wages. 

The implication of a widespread poverty wage is obvious. 

“When somebody’s not able to pay for themselves and/or their families they go out and get government services,” explains Mark Cuban, a wildly successful businessman, in an interview with Wired. “You know who pays for it? You.” 

Cuban goes on: “And for others they’re not even able to get the government services they need. So you know what happens? That’s when we see people living on the streets … that’s when we see people have food insecurity, they can’t feed themself, they can’t feed their kids.” It goes without saying. Paying poverty wages will cause poverty. 

So in order for people to live in a house and eat enough food, the government provides services for those making minimum wage. They can qualify for subsidized health care, rent assistance, food stamps, and more costly social programs. And taxpayers foot the bill.

Your stance on a significantly higher minimum wage depends on how you feel about the purpose of social assistance. Should the government be paying for the basic needs of full-time workers? 

And who benefits from this system? Not the taxpayers, who pay for it. Not the workers who don’t make enough to eat. It’s the business owners getting a boost to their profits at the expense of the American people.

Cuban puts it like this: “When a company doesn’t pay a [living] minimum wage and they have employees that are receiving government assistance, that means we as taxpayers … subsidize that company.”

The only way to avoid this exploitation of taxpayers is to substantially increase the minimum wage. However, the implementation is not so straightforward.

Most economists argue against the progressive goal of $15.00 per hour. Some advocate for $10.00 or $12.00 at the federal level. However, the dollar amount of a minimum wage is not the only complication.

The main worry about raising the minimum wage is that forcing companies to pay more would cause job loss. Paying two workers $6.00 an hour employs one more than having one $12.00 employee. 

But job loss that results from an increase in the minimum wage stem not from the higher wages, but from the spike in cost after the law is passed. To avoid this, most countries slowly up their minimum wage every year to keep up with inflation. This way, there are never huge increases that result in job loss. This system works. It works in rich countries like France and Australia, but also in poorer countries like the Czech Republic and Costa Rica. 

Could this system even work in America? The fact that Washington state’s minimum wage is adjusted for inflation every year answers the worries that the U.S. economy couldn’t implement this automatic change. 

Raising the minimum wage isn’t about dignity, it’s about the money we waste by paying a poverty wage and the hardships faced by minimum wage workers. But a low minimum wage is an easy problem to solve: raise it.

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