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Pay Day

Does the minimum wage hurt the poor?

Marketplace Contributor Aug 23, 2012
Pay Day

Does the minimum wage hurt the poor?

Marketplace Contributor Aug 23, 2012

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.

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