Implementation Affects:
Income Taxes and Spending
By increasing the wages to individuals, reliance on and government benefits can be reduced. This creates two tax dynamics. One, less government spending on benefits may occur and two, since government benefits are usually not taxable, and wages from employers are, therefore potentially raising taxes collected from each employee.
Wages paid directly by an employer to an employee rather than thru prescribed government benefits programs provides the employee the freedom to choose how these monies are spent i.e., provides flexibility for lifestyle decisions regarding savings, home quality, and education for example. It opens possibilities that otherwise would not be available to the employee.
Dependance on Government control of essential life elements (food, shelter) can be considered de-humanizing, leading to depression, family breakdown, and contributing to illegal behavior to secure a sense of freedom and control of your life. It is well documented that there is an increase in depression and suicides when financial issues are plaguing the family.
Business:
Businesses will face management challenges with the implementation of the various higher wages. A scheduled transition period of years to the new wage levels is needed to mitigate these changes and provide enough time for managers and owners to assess and apply various strategies under the new wage levels.
Businesses in Britain have benefited by paying the Living Wage: According to the British Living Wage Foundation, a survey of business found 75% indicated it has increased motivation and retention rates for employees, also more than half of the businesses indicated it improved relations between managers and their staffs.
As employee availability is dependent on their access to food, shelter, clothing, utilities, etc., and if these basic living costs are not fully paid for by the workers’ wages, the employees are being subsidized by the government programs. This subsidization (shown on the chart in brocket) could be considered by many as non-sustainable or a stable economic, political, and social condition.
Consumers:
Consumers will need time to adjust to any price increases. Spreading out over time the wage increases and resulting price increase will allow consumers to evaluate these changes and alternatives.
Co-ordinating Government Programs:
In addition to paying living wages for those who are working, assisting others to be employed is also essential to a society. Persons looking for jobs may not be trained for local jobs or live away from jobs they are qualified for.
Continuing to fund present education opportunities through grants and loans directly to the individual, fostered through State programs, is paramount to helping people without work or are underemployed, for their lifetime.
Matching Persons skill with Job locations – Education combined with a relocation program, providing grants and loans for moving to where the individual’s skill matching jobs are located, will reduce unemployment, other government programs, and provide employers workers when and where they need them.
Implementation Cont.
Tax Affects:
As with any increase of pay there are many tax benefits.
- Increase in State and County Sales tax revenues as sales of needed goods and services increase. Per the Fort Myers, FL – News-Press 1/19/20 “It’s worth noting that lower wage earners tend to spend their income locally and according to economist an increase to $15/hr. min wage would add $120 Billion to the local economy by 2024.”
- When a person does not receive the Poverty Wage (see table MIT-LW FM2019) they become eligible for Federal and State assistance programs. The State minimum wage applies to all individuals regardless of family situation i.e., working or number of children. When the Poverty level is the same or greater that the minimum wage these subsistence programs are available, in most cases this subsistence equals or exceed the difference between the wage paid and the living wage. As an example, with two adults, one working, with one child the poverty level is $9.99/hr. which is over the minimum wage of $8.25 in 2019. If they receive anything less than $9.99/hr. they can receive subsistence equal to the difference of minimum wage $8.25 and living wage of $22.70 or $14.45. This $14.45 is collected from both the businesses and individuals thru their federal and in some cases State taxes. As the business effective tax rate is less than an individual’s a larger portion of the $14.45/hr. or approx. $29,000 per year per recipient is largely paid for by individual citizens. Paying the living wage would be a direct payment to those working rather than to and through the governments and could refocus taxes on other federal and state needs.
- Increase in Federal Income tax paid by workers.
- Increase expense deductions by business.
Employment:
The economic effects of raising the minimum wage are unclear. Adjusting the minimum wage may affect current and future levels of employment, prices of goods and services, economic growth, income inequality, and poverty. The interconnection of price levels, central bank policy, wage agreements, and total aggregate demand creates a situation in which conclusions drawn from macroeconomic analysis are highly influenced by the underlying assumptions of the interpreter.
The effective nationwide minimum wage, (the wage that the median minimum wage worker earns), is $11.80 as of May 2019. The purchasing power of the federal minimum wage peaked in 1968 at $1.60 ($12.00 in 2019 dollars). If the minimum wage in 1968 had kept up with labor’s productivity growth, it would have reached $19.33 in 2017.See Wikipedia: https://en.m.wikipedia.org/wiki/Minimum_wage_in_the_United_States#
Affect on Consumer Pricing:
Conceptually, raising the minimum wage increases the cost of labor, “all other things being equal.” Thus, employers may accept lower profits, raise their prices, or both. If prices increase, consumers may demand a lesser quantity of the product, substitute other products, or switch to imported products, due to the effects of price elasticity of demand. Marginal producers (those who are presently barely profitable enough to survive) may scale back or go out of business if they cannot raise their prices sufficiently to offset the higher cost of labor. Federal Reserve Bank of Chicago research from 2007 has shown that restaurant prices rise in response to minimum wage increases. However, there are studies that show that higher prices for products due to increased labor cost are usually only by about 0.4% of the original price.