Minimum wage idea raises host of concerns
Steven King knows the difference between necessities and luxuries.
King has lived on minimum wage for four years. Minimum wage is $7.25 per hour. At half time, that's $7,540 per year. At full time, it comes to $15,080 per year, minus payroll taxes. Last year, King said, he earned $8,400 working in a program at the Salvation Army.
King lives an almost ascetic life. He rents a tiny apartment over a garage, pays his utilities, and walks or takes a bus. He has little money for much beyond that. The government stretches his wages by giving him $200 a month for food and a phone with four hours per month.
He's not complaining. It beats the two years he spent sleeping in the bushes near a Wichita, Kan., hotel.
“It's literally paycheck to paycheck,” he said. “I pay bills with one paycheck and rent with the other. It's just really, really tight.”
In his State of the Union address, President Obama proposed raising the minimum wage to $9 per hour in stages by 2015 — and then indexing it to inflation.
The arguments for and against that idea will sound similar to the last time Congress raised the minimum wage, when the increases were phased in between 2007 and 2009.
The White House maintains that modestly increasing the wage helps workers, boosts the economy by getting more money into the hands of those who will spend it immediately, and helps employers by cutting down on worker turnover. Several polls show that the majority of people support the idea.
The National Federation of Independent Business, which represents 350,000 small businesses, forcefully rebuts Obama's argument. It maintains that raising the wage will kill jobs by increasing costs for small-business owners without really helping the workers.
They argue that minimum-wage jobs tend to be second or third jobs in a family, that they often are for teenagers and are part time, meaning the increase — painful for the business owner — doesn't do much to increase family income.
Economists come down on both sides of the argument, acknowledged Malcolm Harris, an economist and professor of finance at Friends University in Wichita who tends to dislike the minimum wage.
“The national impact is fairly clear,” he said. “It drives up youth unemployment, particularly minority unemployment.”
Teen unemployment is at 22.1 percent, nearly three times the unemployment rate, while the black teen unemployment rate is 40.3 percent.
“Those numbers won't get any better if you raise the minimum wage,” he said.
The minimum-wage workforce does tend to be young: Half are younger than 25. And two-thirds of minimum-wage jobs are less than 35 hours a week, according to the Bureau of Labor Statistics.
But that still means that half of minimum-wage jobs are held by those older than 25, and a third of those earning minimum wage are working at those jobs full time.
The leisure and hospitality industry — typically restaurants and hotels — has the highest proportion of workers with hourly wages at or below the minimum wage.
Adam Mills, CEO of the Kansas Restaurant and Hospitality Association, said that restaurants already have a small profit margin, less than 4 percent.
“If the minimum wage goes up, then something else has to give,” he said. “It's a combination of higher prices and fewer people working. We are not a high-profit industry. A restaurant owner has to rub two nickels together and figure out how to get 11 cents out of it.”
And, he noted, wait staff who depend on tip income often earn far more than $7.25 an hour. He estimated it at closer to $11 to $15.
Since the recession, the minimum-wage workforce skews older.
Rachel Hinel, a case worker for the Salvation Army, estimates that 70 percent of her clients work.
“We get a lot of people who work in fast food or motels or do seasonal construction work,” she said.
It's possible to make it on minimum wage, she said, but everything has to go right. Sometimes, she said, people don't budget well or don't make good personal decisions, but often it's something beyond their control.
“They'll get a medical bill, or their car breaks down,” she said. “They fall behind and can't seem to get caught up.”
Dan Voorhis is a reporter for The Wichita Eagle.