In 1968, the average annual poverty income level ($3,410) for a family of four was almost exactly what a minimum wage worker could earn in a year of full time work. Today, given inflation, the average annual poverty level for a family of four is $26,200, but a worker receiving the federal minimum wage working full time for a year only makes only $15,000, 43% below the poverty line.
For the last forty years, or since the beginning of the Reagan administration, Republicans and businesses have opposed raising the minimum wage, claiming that it hurt business and the economy. In truth, raising the minimum wage does hurt certain businesses, often small businesses, but that should never have been the question. The first question should have been whether it was fair to penalize workers on the edge of poverty to keep marginal businesses going. Supposedly, the idea behind the minimum wage was to keep business from taking advantage of poor workers.
Now… when minimum wage workers can’t make enough to live on, what happens? They suffer, and so do their families…and they start applying for federal and state benefits. Those benefits are paid for by taxpayers, in effect subsidizing the various businesses benefitting from paying lower wages. The use of part-time workers, who don’t make as much and don’t get benefits provides an even greater indirect subsidy to those businesses.
Those indirect subsidies aren’t primarily paid by corporations, but by individual taxpayers, including the higher paid employees at those businesses, which is another revenue stream to support this indirect business subsidy.
The second question is what is the overall economic effect of keeping the minimum wage low. Because salaried wages are to some degree pegged to the minimum wage, especially those of workers paid by the hour, this depresses wage levels compared to prices. Combined with the loss of purchasing power by minimum wage workers, the result is that a significant proportion of workers have less and less money to spend. Add to that the fact that the lower a family’s income is, the greater the percentage that’s spent. Tht means that when lower-paid workers have more money, the economy benefits more than when those funds are hoarded in corporate coffers. Because the U.S. is essentially a consumer-driven economy, people buy less and the rate of economic growth slows.
A comparison of the minimum wage to the poverty level indicates an overall trend that, on the average, there has been more economic growth when the minimum wage is closer to the poverty level and that growth rates have generally declined as the minimum wage was frozen and costs-of-living have increased.
It’s simple. When people don’t have enough money they can’t buy things. Moreover, when the government is providing a greater share of the income of underpaid workers, because they can’t earn it, not only can’t people buy as much, but the deficit also grows, the indirect subsidy to business gets greater, and economic growth slows.
And, in a way, keeping the minimum wage below the cost of living is essentially a form of fascism, supporting business through government intervention.