Over the course of the past few months, two of America’s biggest employers, McDonald’s and Wal-Mart, announced wage increases for many of their employees. Wal-Mart has agreed to give all personnel $9 an hour with the intention of raising this to $10 an hour in 2016. Similarly, McDonald’s announced raising employees’ wages by $1, in addition to an increase in benefits.
While this is surely good news for some, other less obvious consequences of these raises need to be taken into account.
Firstly, the McDonald’s decision will hardly affect any of its employees. The move only applies to non-franchised workers, or 90,000 out of its 750,000 employees. That still leaves nearly 90 percent of its workforce without what is already a fairly meager raise.
Secondly, and arguably more importantly, an increase to only $10 will not be enough to bring some of these workers above the poverty line. A recent study by the Democratic staff of the U.S. House Committee on Education and the Workforce estimates that Wal-Mart employees take in about $3,000 in public benefits each year. While a raise will help lower this amount, it certainly will not suddenly allow thousands of McDonald’s and Wal-Mart workers to stop using several government assistance programs.
Lastly, these types of corporate announcements, which also include recent raises by Target, Aetna and The Gap, Inc., give credence to the idea that society should allow the free market, rather than the government, to set a “minimum wage”. The federal minimum wage is still stuck at $7.25 an hour, despite a five-year push by President Barack Obama to change it.
With these recent wage jumps coming from corporations rather than legislation, proponents of abolishing a minimum wage can now argue that public demand for higher wages will lead to appropriate increases in a free market.
Of course, the problems with this argument are that these raises still fail to provide many basic needs for families and that, without a minimum wage, some employers would offer even more abysmal salaries.
Although McDonald’s and Wal-Mart benefit from a public relations standpoint with these moves, they do have other incentives that certainly played a role.
Economically, higher wages an employer voluntarily pays, otherwise known as efficiency wages, can attract better workers. In fact, the U.S. Department of Labor reports that higher wages can actually reduce employee turnover, which can ultimately save businesses money. With the economy steadily recovering, employees have more leverage and can seek positions with higher earnings, thus pressuring businesses to raise their salaries.
Still, the debate over whether to raise the minimum wage, and to what amount, remains a contentious issue.
The main argument against raising it too high is that if wages rise, companies will be forced to lay off employees. Todd Neumann, lecturer for the UA Department of Economics, however, said most research on the subject shows that small increases to the minimum wage result in little, if any, additional unemployment.
When asked about raising the minimum wage to $15 an hour, as some groups have called for, Neumann said such a large jump would be unprecedented; thus, little academic literature currently exists to predict accurately what would happen.
Cities such as Seattle, Portland and San Francisco, however, have recently passed plans for $15-per-hour minimum wages. Meaning, it may not be long before the academic community has an appropriate sample size to study.
If these city-level experiments prove successful, the U.S. must examine whether it can finally give all workers fair and substantial wages.
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Jacob Winkelman is a sophomore studying political science and English. Follow him on Twitter.
