Minimum Wage Debate: Who Wins and Who Loses?

by John Gregory | 08/19/14 4:22 PM

Legislation to increase the minimum wage has been proposed in Frankfort and Washington, and the issue is part of the discussion in this year's U.S. Senate race between Alison Lundergan Grimes and Sen. Mitch McConnell.

The panel on Monday's Kentucky Tonight joined the debate on the minimum wage as they explored how a potential increase could affect workers and business owners in the commonwealth.

In the 2014 legislative session, Kentucky House Democrats presented a plan to increase the state minimum to $10.10 per hour over a three-year period. House Bill 1 passed the lower chamber of the General Assembly 54-44, but died in the Republican-controlled Senate.

The Kentucky proposal mirrors legislation promoted by congressional Democrats to increase the federal minimum wage in the same fashion.

Winners and Losers
Jason Bailey, director of the Kentucky Center for Economic Policy, says raising the minimum would benefit 462,000 Kentuckians, or about one in every four workers in the commonwealth. He adds that 22 percent of families with children would be helped by an increase.

While many people see the minimum wage as a pay rate for younger workers, Bailey says only 11 percent of teenagers earn the wage in Kentucky. He indicates there are more people older than 55 earning the minimum than teens.

Those against increasing the wage argue that it would increase unemployment as businesses lay-off current workers or decline to hire new employees to offset their extra payroll costs. Jim Waters, president of the Bluegrass Institute for Public Policy Solutions, says the increase only helps those who are lucky enough to keep their jobs, while it unfairly impacts lower-skilled or less productive workers who would lose their positions, or younger people who won't be hired at all. He also opposes government telling business owners how to run their companies.

Effects on Unemployment
Malcolm Robinson, economics professor at Thomas More College, challenges the assumption that raising the wage will cost jobs. He contends the data indicates that a moderate increase in the minimum creates no negative impact on employment, even among younger workers.

Fellow economist Brian Strow of Western Kentucky University, points to data that shows otherwise. He says that six out of the last seven times the minimum wage was raised, unemployment increased. He also reports that 20 percent fewer teens were employed following the last federal increase in 2008. Finally, Strow points to a recent Congressional Budget Office report that shows 500,000 workers could lose their jobs if the wage is raised. He contends those losses would be unfairly distributed across the country. States that already have a higher minimum would experience less of an impact, while states with a lower minimum like Kentucky would take a bigger hit to employment.

Robinson discounts the CBO study because he believes it's based on flawed data and assumptions. Bailey adds that most studies don’t take into account how an increase can save employers money by fostering increased worker productivity and by reducing employee turnover, which saves on recruitment and training costs.

Here’s an excerpt of the Kentucky Tonight discussion about the minimum wage.

Climbing the Economic Ladder
Bailey also sees an increase in the minimum as a tool to offset the influence of powerful corporations that seek to depress wages and benefits. He says real wages for workers in the lower and middle classes have actually fallen in recent decades because the bulk of economic gains since the late 1970s have accrued to the top 1 percent of Americans.

Not only is that unfair, according to Bailey, but it incurs other costs to society: More people require public assistance, fewer people can afford educational training that would get them better jobs, and there is less consumer spending rippling through the economy. The result, Bailey contends, is lower financial mobility for those at the bottom of the economic ladder.

Waters responds that closing the income gap won't occur if people can't even get on that ladder. He contends government regulation to force a higher wage will simply reduce job opportunities for entry-level workers because companies will limit hiring when faced with higher payroll expenses.

Thomas More College economist Malcolm Robinson says the minimum wage shouldn't be viewed as a poverty reduction program. He says increasing the rate to $10.10 per hour would lower poverty by only 2.5 percent. But he does see the minimum as providing a valuable social safety net for workers facing economic hardship.

Kentucky Versus Neighboring States
The Bureau of Labor Statistics says Kentucky has the highest unemployment rate - 7.4 percent - of any surrounding states. At the same time, Kentucky's $7.25 minimum is equal to or lower than the wage rates for our neighboring states. Indiana and Virginia are also at $7.25. West Virginia is at that rate as well, but its minimum is set to increase to $8 per hour at the end of the year, according to the National Conference of State Legislatures. In contrast, Illinois has a minimum of $8.25 per hour, while Tennessee has no minimum wage.

Kentucky House Minority Leader Jeff Hoover (R-Jamestown) has argued that increasing the state minimum to $10.10 per hour would put the commonwealth at a distinct competitive disadvantage with surrounding states. Economist Brian Strow agrees, saying Kentucky would be the poster child for a state where a minimum wage increase would do the most damage because of our already high unemployment rate and low median incomes.

Jim Waters adds that another burden would be the impact on local school districts in Kentucky. He claims raising the minimum wage would cost public schools $114 million in additional payroll expenses. Without additional state funding, schools would either have to lay-off employees or generate more revenues from higher local taxes.

The Productivity Argument
Another argument against raising the wage, according to Strow, is that higher pay should be tied to greater productivity. He contends that some workers may simply not be productive enough to justify a higher wage rate. Strow contends that pay increases should come as workers earn them, not because the government mandates it. Also as wages increase, companies usually force fewer employees to do more work, or replace people with automation, according to Strow.

Bailey and Robinson see this as another area where the American economy has failed the working class. They contend that productivity has increased since the 1960s, but pay has not gone up accordingly. Bailey says if wages had been tied to productivity, the minimum should now be over $18 an hour.

Watch the full Kentucky Tonight discussion.