The Right Way To Approach Raising the Minimum Wage

January 10, 2014 | Posted by Michael C. Phillip in Policy

There are some national issues that never seem to go away. 

A couple times every decade we circle back to the issue of raising the minimum wage. The problem (underpaid workers) appears to be as concrete as the solution (raising the minimum wage). But something about this solution can’t be right. Solutions are supposed to kill problems, not anesthetize them into dormancy only to have them resurrect themselves a few years later.

Something about raising the minimum wage isn’t working. We keep mowing over the same weed, fully expecting that this time it won’t grow back. When it does, we pull out the quickest fix at our disposal (a fix which also happens to require next to no effort from us) and mow over the weed a couple times until it looks just like another blade of grass. Each time it grows back, we resort to the usual lawnmower-that-is-Washington to get rid of the blight on our lawn.

How many times will we take the same mower to the same weed before we realize the mower is no solution at all? 

Raising the minimum wage, far from being a comprehensive solution, is at best a temporary fix to a much more fundamental problem. 

What lies beneath the surface? The roots of the problem extend to two groups: employers and citizens. With employers, the problem has to do with a misguided understanding of their purpose in society. With citizens, the problem has to do with our failure to live up to the responsibilities of citizenship.

For once, Washington is not the problem.

The Purpose of Business

In response to an inquiry by Bloomberg Businessweek over low employee wages, a spokesperson for McDonald’s declared that “as with most small businesses, wages are based on local wage laws and are competitive to similar jobs in the market.” 

According to this statement, the law, and not the company itself, determines what qualifies as adequate compensation. In other words, McDonald’s apparently holds the view that as long as it operates within the limits of the law, its practices are above reproach. It’s the same mentality that prompts someone to say, “What does it matter if I look at porn? Its not like I'm breaking any laws.” Maybe not, but is it edifying to your character, and will it help you be a better member of society?

McDonald’s response is revealing because it evinces an incorrect and very destructive view of the purpose of business. It suggests that it is not a business’ responsibility to determine what are just wages for its employees. To McDonald’s, a business’ purpose is something other than adequately providing for its employees.

Companies, however, are supposed to be stewards of both their shareholders interests and their employees' interests, equally.  The very first responsibility of any company is to serve these two groups well. If it can’t serve the interests of those within the company, how will it ever be able to beneficially serve those outside the company (i.e. its customers and the civic community)?

When it comes to the minimum wage, the law is a baseline. There is no requirement that companies must pay new hires minimum wage. The law only specifies a minimum below which an employer may not go. If a company is doing justice to its first responsibility, it will ask itself, “What is a just wage for my employees?” Assuming the standard 40-hour workweek, a company needs to set their minimum wage at a level that still allows their employees to live decently. Anything below that baseline would be unjust.

But it doesn’t stop there. A company isn’t only charged with stewarding its employees’ interests, it is also charged with stewarding the resources of the society in which it is a part. Merely paying employees a wage above the minimum wage doesn’t absolve a company of its larger responsibility to society. A company needs to appraise the toll it is exacting on society by its very existence (socially, environmentally, economically).

Take, for example, Ohio. Wal-Mart leads the state in number of employees (or household members) on food stamps with 14,684. Meanwhile, between 2008 and 2013, Ohio’s cost of food stamps more than doubled to $3 billion. Wal-Mart, in the way it chooses to compensate its employees, is exacting a serious toll upon society. Taxpayers are effectively compensating employees on Wal-Mart's behalf because the company has decided to underpay its workers. 

The employer problem, or the reason why there is so much outcry over the minimum wage in the first place, fundamentally has to do with employers’ misunderstanding their basic responsibilities for existence. All businesses are charged with the responsibility of stewardship: first, they must steward the interests of those within in company, namely employees and shareholders, and secondly, the interests of those outside the company, namely customers and the larger community. Profits and growth are pursued as a means of better serving these two groups.

In light of this, can McDonald’s or Wal-Mart or any other employer in America that pays its employees minimum wage honestly claim that it is being true to its purpose of caring for its employees and the larger civic community?

The Responsibility of Citizens 

Our country has an uncontrollable problem in looking to Washington to solve its problems. We have became entranced with the notion that the federal government is the best tool at our disposal for effecting large-scale change in society. But do we really believe this? 

Do we really believe that Washington is the best way to solve society’s biggest problems, such as underpaid workers? Or are we pushing responsibility on Washington simply because it absolves us from having to bear the burden for change ourselves?

The "new normal' in America is resorting to Washington to legislate our problems away. Sadly, this behavior has been so habituated in us over the last couple of decades that we no longer expend much effort to think through creative solutions ourselves. In a republic that thrives on voluntarily participation to manage society’s affairs, this mentality is disastrous.

Washington is an extension of ourselves (we elect people to represent our interests), but it is often not equipped to effect large-scale change (especially with the gridlock we see nowadays). The burden must be borne by citizens; we ought to resort to Washington only as a last resort. Underpaid workers is not Washington’s problem, it is our problem.

In light of this, we need to be honest with ourselves. How much do we really care about the unjust treatment of many of America’s hourly workers? If the issue truly concerns us, we would be eager to do whatever we can to restore just treatment to workers.

So what should change look like, and how do we bring it about?

Solving the Problem

The change that we want to see is more than just higher wages. It is for companies to allay the burden they place on society as a result of their existence (in this case, the number of their employees who are on some form of public assistance, such as food stamps). 

The government has determined that full-time workers earning less than $16 per hour qualify for food stamps and Medicaid assistance (depending on household size). Thus, justice to both employees and the civic community would dictate that companies should pay each and every one of its workers at least $16 per hour. Companies should strive to make it impossible for any one of their workers to be eligible for public assistance. After all, can an employer really claim that it cares about its employees’ welfare when its employees are on welfare? 

Admittedly, getting Wal-Mart or McDonald’s to pay every one of its workers no less than $16 per hour is unlikely, but companies can start by accelerating the rate at which employees' hourly wage increases, as a means of getting as many of their employees to $16 per hour as quickly as possible.

Will this hurt profits? Of course. Will shareholders lose value? Absolutely. But a company is charged equally with providing for its employees and creating shareholder value. The two groups must be held in tension; one should never take precedence over the other. 

Nevertheless, while quantitative value might be lost in the short term, I think the qualitative value gained in terms of employee loyalty and quality of service will ultimately generate more revenues in terms of increased sales and enhanced customer loyalty (contrast the Trader Joe's or CostCo experience vis-a-vis Wal-Mart). As the company’s practices become more widely known, and as customer experience improves, the goodwill generated with customers will more than compensate for momentarily low profit margins.

It should be noted that the most effective solution is one that comes voluntarily on the part of employers. Mandating higher wages via Washington imposes equality on companies and restricts freedom in the process. This should be avoided as far as it’s possible.

So how to we get employers to change?

As consumers and potential customers, we are the real power-brokers. No one else is as formidable as we are in getting companies to change their practices. The great thing about capitalism is that companies are forced to listen to the market, otherwise they will go out of business. 

The way that we can most efficiently change the way hourly employees are compensated is 1) by making our desires known, and 2) by responding with our wallets. Using our voices to lobby for higher wages and choosing to spend our money elsewhere, if adopted on a large enough scale, will cause any employer to change their practices. 

The solution really is that simple, but effective implementation will require entrepreneurs to create innovative ways (something America excels at) to bring people together in pursuit of a common goal., and are a start, but mere petition-signing isn’t enough on its own to generate a mass movement. 

If this sounds daunting, if this sounds like too much work, then we have to wake up to the responsibilities of citizenship. In a republic, “the American practices the art of government in a small sphere within his reach,” as Alexis de Tocqueville noted back in 1835. When it comes to the minimum wage, the weight of the issue is simply too great for Washington to bear. We must bear the burden ourselves.

Tags: Responsibility, Minimum Wage, Justice, Freedom, Equality, Tocqueville

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