Does the minimum wage hurt the poor?

Customers walk out of a Taco Bell and Pizza Hut restaurant during lunchtime in Los Angeles, Calif. The restaurant is owned by Yum! Brands, one of the largest employers of minimum-wage workers.

The burrito Krissy ordered for Bob Pollin.

UPDATE: In his 2013 State of the Union address, President Obama proposed raising the minimum wage to $9 an hour. The very next day, House Speaker John Boehner said Republicans in the House wouldn't support that proposal because it would hurt small business and kill jobs. 

Recently, Congressional Democrats introduced a bill that would raise the federal minimum wage from $7.25 to $9.80 over the next two years. It's not expected to make much headway this year, but it’s got people talking about the pros and cons of the idea.

To get to the heart of this debate, I took two economists to the heart of minimum-wage country to have them hash it out.

To get to there I didn't have to go far. Almost every city in America has a fast-food row, and I headed to the one near my house in L.A. Specifically, to the kind of funny-sounding fast-food-hybrid that's the subject of this definitely funny song:

YUM! Brands Incorporated is the parent company of Pizza Hut and Taco Bell, and is one of the largest employers of minimum-wage workers in the country.

It’s U.S. workforce is more than 800,000 strong -- and includes Liz, according to her nametag. She's the middle-aged cashier in a black and purple uniform who took my order at my neighborhood Combination Pizza Hut and Taco Bell. I asked Liz how much she makes, but she said she didn't want to say and motioned me over to her supervisor, who told me the starting hourly rate for a job like Liz's is minimum wage.

What she didn't tell me is this fact of the modern American service economy: at current mimum-wage levels, if Liz was supporting a family of three, she’d be below the poverty line.

Taco Bell says they pay competitive salaries and provide training so people like Liz can move up. But what would happen to Liz, to her customers, to this Pizza Hut/Taco Bell’s bottom line if the minimum wage was raised?

I took that question to two economists who see minimum wage in very different lights, for a minimum wage "throw down."

In one corner: Bob Pollin at the University of Massachussets at Amherst. In the other: David Neumark at the University of California, Irvine. And just for fun, I did the interview at my local Combination Pizza Hut and Taco Bell, and Pollin and Neumark were on opposite sides of the country, I asked them to imagine they were there with me.

To start off I asked them each for their basic perspectives on minimum wage. I also asked them to order something off the Pizza Hut/Taco Bell menu.

Pollin ordered a burrito. Then he launched the opening volley. "We should have a minimum wage that enables everybody including all the people at the Pizza Hut and Taco Bell to lead a minimually decent life," he said. "And in order to do that you can’t just rely on the market alone."

Neumark said he agreed with Pollin on one count.  "I don't like the idea that people who work live below poverty conditions, or even somewhat above poverty conditions," he replied. But, he added, "I think the question is: does a minimum wage actually help?"

Then Neumark ordered a large pepperoni pizza and an extra large Coke. "Since this is an invisible meal," he said. "And I'm not eating it."

But that's when things got interesting.  Neumark says one of his main concerns about raising minimum wage was actually illustrated by what my cashier, Liz, told me when I order that extra large Coke: "I'm going to give you the cup," she said pointing me to the self-serve drink dispenser.

Turns out this moment, Nuemark says, is quite possibly an effect of past increases in the minimum wage.

"When I was a kid and you ordered a soda, a person had to stand wiuth their finger on the button til the glass filled up," he said. "And now in many of the fast food restaurants of course they've completely eliminated any labor involved with pouring the soda."

Soda by soda, that can add up to eliminating a job.

"It may not sound like much," Nuemark continued, "but minimum wages can accelerate these kind of changes."

He argues that if a company has to pay people more, they’ll find ways to pay fewer people. So what would happen if we raised the minimum wage today and came back to this Pizza Hut/Taco Bell in six months?

"My prediction based on lots and lots of research is that there’d be somewhat less employment at that restaurant," Neumark said.

Of course, he cautioned: "Economists have been wrong once or twice about their theories."

"But not you!" interrupted Pollin, the  economist from University of Massachusetts at Amherst.  He was ready for his turn.  First, Pollin pointed out the academic research is split on whether raising the minimum wage actually raises unemployment in any significant way. For one thing, he says, there are alternative ways a fast-food joint might offset the extra costs of higher wages.

"The prices of the products could go up," Pollin noted. "And you will also see some reduction in the profits of the business owners."

And, he says, you can’t ignore all the good things a minimum wage bump can do for the workers themselves. Pollin has surveyed nearly a hundred people who’ve been affected by past minimum wage increases. He asked what changed in their lives.

"You don’t have to work three jobs, you only have to work two jobs," Pollin said. "Or they can get a car, a used car, or at least get a car repaired. They can buy groceries for elderly parents. Those are meaningful things."

Pollin also argues that because businesses are investing more money in their workers, turn-over tends to drop, too.

"You get people working at a higher level of productivity. That improves relations between managers and workers," Pollin said. "You essentially change the nature of the work relationship when you pay people decently."

Pollin and Nuemark sparred a bit more over raising the minimum wage. Pollin pointed out that if you adjust for inflation, minimum wage is actually lower now than it was forty years ago. Nuemark, meanwhile, questioned who really benefits from a higher minimum wage. Poor families? Or the many middle-class teenagers who work low-wage part-time jobs?

One of the few things they could both agree on about minimum wage?

"It’s not a cure-all to poverty," Pollin said. "In fact, the biggest source of low-income poverty is that people don’t have jobs at all."

Finally, some consensus: "I absolutely agree with that," Neumark replied.

Back at the cash register, I asked Liz -- the woman behind the counter -- what she thought about all this. But she couldn’t talk. She was on the clock.

As for Pollin and Neumark -- they were of course in different parts of the country, so they couldn’t actually eat the pizza and burrito I'd ordered for them. But I could.

About the author

Krissy Clark is the senior reporter for Marketplace’s Wealth & Poverty Desk.

The burrito Krissy ordered for Bob Pollin.

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Simple economics: the working class spend 100% of their income, generally speaking. The higher earners/salaried/upper middle/truly rich have the luxury of saving/hoarding earned income. The return on investment for wage dollars on minimum wage and low wage workers is higher than the ROI on higher income individuals who do not spend from paycheck to paycheck. Roughly 70% of our GDP is consumer spending, it stands to reason that placing spendable income in the hands of the spending class drives demand to the highest levels of corporate America. Supply Side economic theory and practice has proven to be a disaster of epic proportion. Simple economics, and, increasing minimum wage by (for example) $1 does not raise the cost of goods and services by the same $1, yet, gross sales will increase.

If you keep minimum wage under poverty level, no one is going to be able to afford big business's product and services anyway and they won't partake because they can't. so either way it hurts big business. and folds family owned business because they aren't able to stay afloat. So if all your worried about is hurting big business...keeping us under poverty level is DEFINATELY going to.
If we can't afford to partake in your goods and services because of our inability to finanically, people move to a place where they CAN afford to take care of thier families and survive, and they don't partake anyway. so no matter what, if you don't raise the minimum wage to something reasonable..any business and the economy loose. period.

Misquote: " 'But not you!' interrupted Pollin, the economist from University of California, Irvine." – I thought Pollin was the guy from UMass-Amherst?

At one point you've mixed up the names of the two economists, confusing at least this reader. (Paragraph beginning with quote "But not you!" … )

Well said: "I don't like the idea that people who work live below poverty conditions." There is a misconception in this country that the working poor do not work. The folly of meritocracy rings out when hard working people are barely able to survive let alone thrive. Furthermore, "Pollin pointed out that if you adjust for inflation, minimum wage is actually lower now than it was forty years ago." Higher numbers do not equate to higher quality of living.

Well said: "I don't like the idea that people who work live below poverty conditions." There is a misconception in this country that the working poor do not work. The folly of meritocracy rings out when hard working people are barely able to survive let alone thrive. Furthermore, "Pollin pointed out that if you adjust for inflation, minimum wage is actually lower now than it was forty years ago." Higher numbers do not equate to higher quality of living.

I must point out that you can't order a Coke at Pizza Hut/ Taco Bell. This little discrepancy jumped out at me because I am a minimum wage employee of Pizza Hut.

I am a divorced mom in my thirties. I graduated summa cum laude from a small private college, laden with awards around my neck and dreams for my obviously bright future. I remember feeling that all my hard work had paid off.
I will spare you the mundane details, but a few years later i am barely surviving. I have been searching for a professional job for longer than I'd like to admit. I've lost our housing a couple of times and have been turned down for state aid on the basis that i am employed.

We almost became homeless again last month so with no options left, i started working for an escort agency.
The first blatant lie I've told my children is what i do when i go to work. I'm not happy about my new career, but i am at peace with myself because it was the only way to prevent another bout of living in my car. A dollar increase in the minimum wage wouldn't have meant much, but a real living wage would have prevented this. And instead of Jean Valjean-ing for the necessities like many do, a living wage would enable workers to boost the economy by proudly paying for items like soap and underwear.

Actually, having the customer fill drinks does not eliminate jobs. It moves the job to the customer. If the customer doesn't mind this, he will be happy with the service at the combined Pizza Hut/Taco Bell. If he does, he can pay a bit more for full service.

Actually, only the market can determine the optimim level of employment. But when it's action is interferred with by arbitrary regulation, restaurants respond by doing things such as putting in more self service. The net result is there are less workers than there would have been absent those min wage regulations.

You basically eliminate those jobs whose value to the business is less than the higher than market mandated wage. If those jobs had been eliminated because everybody had a job and the market had pushed the price of labor up naturally, then it would be an appropriate adjustment to bring in self service.

What we have now is a surplus of labor in many catagories, especially unskilled labor, prices SHOULD be falling, allowing that labor to be profitably deployed and solving our unemployment problems.


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