Justice and economics converge in debate over right-sizing minimum wage

Edgar "Dooky" Chase III

Gavin Goins

Edgar "Dooky" Chase III

Debate rages. President Obama has urged raising the minimum wage to $10.10 an hour and, in the absence of congressional action, has mandated that federal contractors begin paying that amount immediately. Will it kill jobs for America’s 16 million minimum-wage workers? Or, by enhancing their spending power, will it boost the national economy.  Let’s take a look at the underlying economics. Let’s do the math.

Most people (business owners and wage earners alike) rarely associate the minimum wage issue with fixed costs. Yet, rising labor cost is among the more significant issues for a business owner, and not having enough money left over to pay bills is the most significant issue for the worker.

Rising fixed minimum wage rates push out a business’s breakeven point.  Any business will find itself out of business within two to three years unless greater customer volumes and higher customer receipts materialize to offset rising labor costs. Quickly, entrepreneurs learn the precise point at which their business breaks even. At that point, the entrepreneur neither earns nor loses a penny. The entrepreneur is simply swapping dollars, acting only as a money handler among suppliers, customers, and local, state, and federal governmental taxing authorities. Thus, who with a sound mind would ever argue for an increase in the hourly minimum wage?

Yet seldom does an entrepreneur think in the macro sense or consider what good would inure to society by paying a just wage. Some states mandate a higher minimum wage than is, in fact, required by federal law. Regardless, the issue addressed here is should the federal government increase the federal hourly minimum wage of $7.25 to a higher level — let’s say as an example to an hourly rate slightly above the United Kingdom’s current minimum hourly wage rate ($8.76 or higher).

Globally, costs are relative. A minimum wage of $7.25 in America may seem like a rich hourly wage compared to Mexico’s $0.89 per hour. American companies have in the past moved jobs across borders and overseas to lower minimum wage paying nations (China ($1.73) and India ($0.61)) in order to save on labor costs and thus lower the breakeven point, thereby earning higher and higher profits. Shareholders are happy and CEO’s get paid higher salaries and bonuses.

In fact, many CEOs of publicly held for-profit companies get paid over 500 times the federal minimum wage. But the point here is this: Wage gaps between the top 10 percent and the bottom 10 percent of American workers are widening.

Pick a number, any number you choose to justify as acceptable in America for rewarding work, effort and talent. Perhaps, it does not make sense to put a ceiling on anyone’s hourly wage rate. Regardless, does it not make sense to put a floor? Shouldn’t economic justice in America call for narrowing wage inequalities? You be the judge.

How many restaurants and service businesses will go broke because the minimum hourly wage rate went up? Should they be in business anyway if they cannot pay their workers justly? How much of that minimum-wage increase will be passed on to consumers in the form of higher prices? For many people, any minimum wage increase just seems like a zero sum game.

Yet, gasoline costs have risen; flood insurance rates rise, some at 15 percent per annum;  gas and electric utility rates increase, sewerage and water rates increase, property taxes rise — yet the minimum wage rate in America, after taking inflation into account, is just about where it was in 1968. For 45 years real hourly minimum wages have either stagnated or declined. Had the federal minimum wage been adjusted upward at 4 percent per annum from its 1968 level of $1.60, it would be $9.34 per hour in 2013. Nonetheless, I am sure that there are some hardline business owners among us who may say that $7.25 per hour is sufficient. I am not one. Seventy-five thousand workers in the hospitality industry in New Orleans deserve better.

Entrepreneurs should pay a “just” wage. Given the rise in fixed costs in America, the current federal minimum wage does not allow a person receiving that level of pay to “break even.” Shouldn’t workers break even too? A worker earning $7.25 per hour cannot afford to pay both rent and utilities on a decent home; and certainly, cannot afford to purchase a car and a home and upkeep both, or pay tuition at a public college or university.

Paying a just wage means that a laborer ought to be paid sufficient to his or her “value-added” productivity. I have seen businesses that fail to do that, many of them with incredibly loyal workers who seldom complain. In fact, American workers are among the most loyal and productive in the world. If America is going to continue to lead the world, that kind of cooperative workforce has to be sustained. Paying a just wage sustains productivity.

The additional truth is that minimum-wage earners have the highest propensity to spend what they earn. Historically, consumption accounts for nearly 70 percent of gross domestic product (GDP). If Congress wants to stimulate job creation, increase GDP, and increase tax revenues to reduce deficits, then the minimum wage ought to be front loaded to increase at 6.5 percent per annum for the next three years then at 3.5 percent per annum for the next five years. Start now while interest rates are at historical lows and commodity price inflation is not significant. With current labor productivity benchmarked at 2.42 times every $1 spent, GDP growth will ramp up faster and unemployment decline quicker than any cut in federal taxes on incomes over $200,000 could achieve.

In conclusion, breakeven-point logic supports systematically raising the federal minimum wage and growing the economy. An urgent need exists to increase America’s propensity to consume. Paying just wages enables consumption.

The low rate of commodity price inflation presents a rare opportunity for hourly minimum wage rates to increase without exacerbating overall inflation. Front loading a catch-up rate increase of 6.5 percent per annum will lift the floor rate in the federal minimum wage to $8.76 by 2016.  Continuing the increase thereafter at 3.5 percent per annum will establish the federal minimum wage at $10.40 per hour by 2021.

Justice requires establishing a floor. The free-market economy will determine the ceiling. If properly implemented, state and federal tax revenues should grow; government deficits should shrink.

Edgar “Dooky” Chase, a member of New Orleans’ famous family of restaurateurs, retired as vice president of facilities planning and management at Dillard University. He is a trustee of Loyola University where he earned both his undergraduate and law degrees.

Help us report this story     Report an error    
The Lens' donors and partners may be mentioned or have a stake in the stories we cover.
  • Hoodoonola

    In addition to raising the minimum wage we must revamp our nation’s economic and workforce development policies. Currently, as a nation, we spend $180 billion on subsidies to big business in addition to $37 billion in workforce development to which businesses derive substantial benefit, more so than the worker participating in these training programs. Our workforce development system is so driven by employers and so heavily tilted in their favor that it also has become nothing more than another benefit system for big business, leaving labor in the lurch.
    The other problem with this system as it currently operates is that it fails to unleash the innovative capacities of our nation’s workforce.
    Many are now looking to a more democratic business model as a solution ~ one that provides for braoder community ownership and greater individual and community self-determination. The model is that of worker-owned cooperative businesses. Minnesota recently began developing a strategy to overcome an expected shortfall of 50,000 home healthcare workers by the end of the decade. Home healthcare is notoriously low wage and none but the most desperate enter the field, explaining the burgeoning shortfall in the sector. Minnesota’s strategy is a two-pronged approach – to unionize the workforce and to assist in facilitating the start-up and development of worker-owned businesses in the sector.
    Last week, the NYC city council passed a resolution supporting worker-owned as a viable and effective economic and workforce development strategy. Jackson, MS is also embarking on strategies to develop a solidarity economy of which democratic worker-owned businesses are the centerpiece. As one of the nation’s much trumpeted leading start-up cities, it is time New Orleans also begin walking this path to greater participation and prosperity for all.

  • Hoodoonola


    “A Call to Develop a Worker Cooperative Sector in New York City: How the City Can Create Jobs and Address Inequality at Its Roots”

  • nickelndime

    I just can’t figure it out. Customers shop/eat at places that pay workers minimum wage. And instead of being happy to see customers, these minimum-wage employees cop an attitude that is unbelievable. Customers wait in long lines because minimum-wage employees go from SLOW to SLOWER to SHUT DOWN. Managers hide out. Managers don’t want to pressure (or correct) the minimum wagers because they are happy the employees have actually shown up for work (WALMART, WINN DIXIE, FAMILY DOLLAR, DOLLAR GENERAL, BURGER KING, McDONALDS, WAFFLE HOUSE, POPEYES, CHURCH’S, RITE AID, WALGREEN’S, CVS, on and on and on…). New Orleans (tourist city, HA!) is the worst. I have shopped elsewhere and nearly fall over when employees smile, speak coherently, and attempt eye contact. Perhaps Mr. Chase is a worldwide traveler and not stuck in this city like the other 80% (not the top 10% or the lowest 10%) who live, shop, eat, and work here, so if he and others want to up the minimum wage, that’s fine, but he is obviously not frequenting some of the businesses where many other New Orleanians are shopping.

  • Sam

    Gosh, I wonder why someone working his ass off for a crappy wage that will barely pay his bills (if he lives like a pauper) would be in a bad mood occasionally? Weird. But more to the point, having lived in N.O. for ten years and also traveled the US for work, I’d say the only difference between service in NO and elsewhere in places that tend to pay min wage is that the NO workers are waaaaaay nicer. But then again I don’t treat them like dirt, so maybe that’s where the difference lies.

  • nickelndime

    Here is a REPRINT from another site, but the issue of minimum wage is mentioned, so here goes. “Sam” to “nickelndime” (fess up – you must be a WALTON with this take on minimum wage employees in New Orleans):
    LOUISIANA is not in a position to promise anything to anybody, much less at-risk public high school students. First off, no one should actually believe what a lobbyist says, particularly one who is addressing BESE! Secondly, there probably will be thousands of technical, skilled-labor, industrial jobs available in Louisiana because Louisiana will secede from the United States, become a banana republic (oh wait, it already is) and will replace China as the newest source of cheap labor. And oh yes, it will receive foreign aid from the United States and become an even better tourist attraction because no worker will be guaranteed anything, not even minimum wage! Then…the Americans can visit Louisiana and actually enjoy their stay – you know, as long as they remain in the CBD and the Vieux Carre. Sort of like, NOW, but with a twist.