Minimum Wage and Wealth Inequality

Bottom Line Up Front: When people are paid more, they spend more which benefits our local communities.  Several cities have successfully experimented with raising the minimum wage to $15 an hour, with minimal or no loss of jobs or business.

Nonpartisan studies show that the top .01% of Americans have accumulated as much wealth as the bottom 90%, and that 99% of income goes to the top 1%.  One reason for this extreme wealth inequality is an artificially low minimum wage.  Essentially what we have done is prevent money from circulating by not paying people living wages.

So, what are we going to do about it?  One solution is to simply raise the minimum wage. The fear is that raising the minimum wage will hurt small businesses who can’t afford to pay more for good people.  It is the difference between macro- and micro-economics. Raising the minimum wage looks great on the large scale, but when it comes to implementing it, there can be some serious concerns.  Even so, it is possible to raise the minimum wage, and it can even be good for business. Let’s observe two real world instances.

Let’s look at Sam’s Club and Costco.

Sam’s Club is the bulk store for Walmart.  Costco provides essentially the same service. Both companies have a membership fee.  The difference between the two businesses is how they compensate their employees.

                                                             Sam’s Club                                       Costco

Starting Wage:                               $7.25                                                $11.50

Average Wage:                              $10.11                                              $21.00

% with Health Ins                           <50%                                                  82%

Cost of Health Ins:                   33% of wage                                 8% of wage

Employee Turn over:              44% per year                               17% per year

Only 64% of Sam’s Club employees have retirement plans, as compared to 91% of Costco employees. Saving for the future is important.

Look at that lower turnover rate!  Replacing employees is expensive. It costs a lot of money to recruit and train new employees. Even though they pay a higher wage, Costco saves money by retaining the employees they have. Their turnover rate is only 6% after one year of employment with the company.  Because they keep their employees, Costco doesn’t need to have as many people at their stores. The folks who work there know how the stores work, and they can take on more responsibility.  Much of this information comes from the Harvard Review article, “High Cost of Low Wages.”

All across America, cities are experimenting with raising the minimum wage. The most notable is Seattle, Washington, which raised the minimum wage to $15 an hour.  Some predicted disaster for the city, claiming that higher wages would force businesses to hire fewer people and increase unemployment.  But, that is not what happened.  According to a  University of Washington study, unemployment dropped to 3.4%, and there was little or no evidence business closings or job losses.

How can that be?  It’s simple. When people are paid more, they have more income to spend. When they spend more, businesses make more.

California and the District of Columbia have approved an increase in the minimum wage to $15 an hour, as have several other large cities across the country.  They’ve done it by raising the rate slowly and allowing the economy to adjust.  We can learn from these successful experiments, and roll out a minimum wage increase throughout the United States.  Here is a chart showing the current and planned wage increases from the Economic Policy Institute.

But wealth inequality is more than just a difference in income. Wealth inequality also includes unequal taxation. The top 1% don’t pay nearly as much in taxes as do the 99%. Look for more information under the Tax heading.