Are Wages Slowing Production of the American Dream?
Should federal minimum wage increase? Will this solution help Americans climb out of poverty? Will higher wages for some equal loss of work for others? With all these being valid questions, clearly lawmakers are finding it hard to meet on common ground.
In February 2014, the Congressional Budget Office (CBO) released its report, "The Effects of a Minimum-Wage Increase on Employment and Family Income," which explores the effects of increasing federal minimum wage from its current rate of $7.25 per hour to $10.10 per hour.
If the report clearly states anything, it’s that both the pros and cons of this issue are extremely difficult to forecast and anything but certain.
Both sides of this argument have valid points.
- 16.5 million low-wage workers could see an increase in their weekly income
- 900,000 people could rise above the poverty threshold
- May translate into increased consumer spending
- 500,000 jobs could be lost
- Possible heightened demand for goods and services = increase in price
So, how does this affect manufacturing? Here’s what we know, based on the Bureau of Labor Statistics, from 2012:
- 75.3 million workers in the United States were paid at hourly rates
- 2.12% of hourly workers earned exactly federal minimum wage, $7.25 per hour
- 1.5% of hourly workers in manufacturing (production, transportation, and material moving occupations) earned federal minimum wage, $7.25 per hour
Although only 1.5% of hourly workers in the manufacturing sector earning minimum wage, 1.2% actually earn less. This does not necessarily indicate violations of the Fair Labor Standards Act, as there are exemptions to the minimum wage provisions of the law. However, that means 2.7% of all hourly workers in manufacturing earn minimum wage or less. Not included, are all of the exempt employees whose hours and salaries are not equivalent to minimum wage.
So, while the average production and nonsupervisory worker in the manufacturing sector makes $19.43 an hour, we know that there are some employees who will initially accept an offer to earn minimum wage. They of course will require an increase in wages, resulting in dollars draining from your budget.
In a recent article from the Chicago Tribune, Illinois Congressman Bill Foster suggests that paying manufacturing workers a sustainable living is a long-term economic investment , “As a businessman who started a high-tech firm that provides hundreds of good manufacturing jobs in the Midwest, I know the value in paying workers a living wage,” said Foster. “It doesn’t just help workers struggling to support their families, it supports economic growth.”
What this debate ultimately boils down to is if it’s better to raise wages for 16.5 million workers while leaving 500,000 unemployed, or sustaining more jobs at lower wages?
Fortunately, the manufacturing industry will not be a sector that is directly hit as hard as other industries, such as the leisure and hospitality industry, where 19% of hourly workers earn minimum wage or less. However, manufacturers will be forced with the decision to either spend more to hire employees at a higher cost, or manage to maintain productivity with less workers.
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