Living wages are defined as the minimum wages that are required for subsistence in the U.S. It is a small step up from the income compared to the poverty threshold. It does not include funds for pre-prepared foods, restaurant meals, money for entertainment, unpaid vacations, holidays, and purchase of capital assets or making investment provisions for post-retirement life. The living wage depends on many factors such as the size of the family, the composition of the family, that is how many are earners and how many are non-earning members. Geographic differences also play a large part in determining the living wages. The working adults are assumed to work 2080 hours per year.
Should companies pay their employees a livable wage?
An employee who earns a Federal minimum wage ($7.25) and works for 40 hours a week would earn about $15,080. If the household contains two people, a single parent and a child, then this income would be slightly less than the poverty threshold of $15,130. However, most people in that income bracket work for less than 40 hours a week making their earnings proportionally less. The payment of living wages has a few benefits to the company and the country as a whole. The raised wages will be plowed back into the economy as the purchasing power increases resulting in more spending and thus providing an economic stimulus. Due to this stimulus, more jobs are generated as the companies have to hire more people to manage the increased sales due to increase in the number of workers with more disposable income. The social programs run by the government can be reduced as these are the people who depend more on government assistance through social programs. Economic Policy Institute states that if the minimum wages are increased to $10.10, the number of American workers depending on public assistance programs would reduce by 1.7 million resulting in seven billion USD savings. Due to the higher minimum wage, employees feel more secure and comfortable thereby increasing productivity. This will result in reduced turnover too, which means the hiring and training costs are reduced. The disadvantages of higher minimum wages are that the extra expenditure might have to be offset by layoffs in companies that have tight margins, leading to increasing in unemployment. To offset the increase in salaries, the prices might have to rise resulting less competitiveness and hence loss of sales. They may also not be able to hire as many employees as they were hiring before due to the increase in per employee cost. Due to the higher minimum wages, companies would like to hire the most qualified workers so that those employees who are young and inexperienced cannot get hired and cannot get the experience to become employable.
Is it fair for employees to expect a livable wage? Would $15 be enough?
Tim Worstall of Forbes states that, when minimum wages are increased from the current $7.25 per hour to $15 per hour, the increase is more than 100%. This could lead to price increases, more job cuts, and more businesses going bankrupt or jobs moving offshore. This could result in more people being jobless. He feels that having more people with bad pay is better than more people with no pay. Instead of that, he feels that programs such as Earned Income Tax Credit (ETIC) are better as it puts more disposal income in the hands of the employees. It also ensures that only those people who deserve and need the extra income are granted the income. So, a family that has more dependents benefits more from ETIC than higher wages.
What changes can companies make to accommodate higher wages for employees?
Companies will have to cut jobs, offshore the jobs to low-cost countries, or automate tasks that are labor intensive so that they can be competitive. Other options include letting the workers work for less number of hours or take only highly talented persons for those jobs so that the company can benefit due to the increased productivity. It is also possible that most people who were interested in opening their own businesses might shy away from doing that as the profitability is reduced. All these could lead to a recession.
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References
Glasmeier, A. K. (2014). Living wage calculator: user's guide/technical notes. Cambridge, MA: Department of Urban Studies and Planning, MIT.
Halvorson, C. (2014, march 6). The pros and cons of raising the minimum wage. Retrieved from wheniwork.com/: http://wheniwork.com/blog/the-pros-and-cons-of-raising-the-minimum-wage/
Ravichandran, H. (2015, May 13). Why paying a living wage Is smart business. Retrieved from entrepreneur.com: http://www.entrepreneur.com/article/246112
Worstall, T. (2014, September 6). A $15 an hour minimum wage would be a $17,500 a year tax on jobs. Retrieved from forbes.com: http://www.forbes.com/sites/timworstall/2014/09/06/a-15-an-hour-minimum-wage-would-be-a-17500-a-year-tax-on-jobs/#65829ef2138a
