What if we could create a program that would strengthen our tax base, make government spending more fiscally responsible and provide a powerful financial incentive to low-income workers? It sounds too good to be true.
But it already exists and dates back to 1938--the minimum wage.
When wages are too low for even full-time workers to buy basic necessities, workers turn to taxpayer-funded programs like food stamps and Medicaid. A surprising beneficiary is the low-wage employer who is being subsidized by taxpayers.
It's a perverse incentive program. A corner business or giant retailer like Costco that pays a starting wage of $11.50 an hour gets no government subsidy, while a store across the street paying the federal minimum wage of $7.25 is actually getting a government handout because it pays a substandard wage. This does not make economic sense.
Unfortunately, the minimum wage has been eroding for decades. The minimum wage under Republican President Dwight D. Eisenhower in 1956 was actually 18 percent higher than it is today, adjusted for inflation. We can't progress as a nation this way.
Back in 1914, Henry Ford doubled the average autoworker's pay and reduced their workday to eight hours in order to cut turnover and enable them to afford to buy the Model T. He understood the crucial connection between worker wages and consumer demand.
Too many business people have unlearned this lesson and our economy continues to suffer as customers have less to spend on the products businesses have to sell. If cutting wages were the answer, our economy would be humming right now.
Raising the minimum wage is a great way to boost consumer demand, because every additional dollar that goes into the hands of a low-income worker is very likely to be spent, thus spurring business sales and economic growth. Our economy needs this boost from the bottom up.
We employ hundreds of customer service and warehouse workers at Uncommon Goods. Our lowest wage for seasonal workers is $12--up from $11 in 2012 and $10 in 2011. Full-time workers earn more. We see higher productivity and lower turnover when employees are fairly compensated. And as we've raised our starting wage, our entry-level workers have become more financially self-sufficient. That's what our government should be encouraging--not poverty wages.
The Fair Minimum Wage Act introduced earlier this year in Congress would gradually raise the minimum wage in three steps to $10.10 and then annually adjust it for inflation to keep up with the cost of living. In addition, it would raise the minimum wage for restaurant workers and other tipped employees who have an even lower minimum wage of $2.13--a figure that hasn't changed in 20 years. The $5.12 shortfall per hour between $2.13 and $7.25 is expected to be covered by customer tips--whether you work the slowest shift or at the lowest priced truck stop. When that doesn't happen, employers are supposed to pay the difference. Not surprisingly, many don't. The proposed legislation would gradually raise the base wage for tipped employees to 70 percent of the regular minimum wage.
As business owners, we have to deal with annual price increases in rent, insurance, utility bills and supplies. Our employees also feel the pinch of these higher costs and should see their wages increase to keep pace. Future more predictable 2 to 3 percent annual increases for inflation will be much easier for businesses to manage than the necessary situation now of bigger spikes after years of stagnation. And indexing the minimum wage to inflation has the great advantage of taking politics out of the issue.
Ten states currently index their minimum wage to rise with inflation: Arizona, Colorado, Florida, Missouri, Montana, Nevada, Ohio, Oregon, Vermont and Washington. And New Jersey voters recently passed a referendum making it the 11th state to do so. It's time for the federal government to follow suit.
Public opinion polls show wide support for raising the minimum wage and indexing it to inflation. We should see the same broad bipartisan support in Congress.
It's been over four years since our country's poorest workers have gotten a raise. Let's not let another holiday season pass them by.
David Bolotsky is founder and CEO of UncommonGoods, an online and catalog retail business based in Brooklyn, New York.