How much money low-skill labor is worth and how much money society wants laborers to have are very different questions, and they demand separate answers. When you try to solve both with one fix, as Gov. Andrew M. Cuomo and many others want to do, you end up taking more money out of the pockets of the working poor and less from the rich.
Cuomo defended his plan to increase the state minimum wage to $15 an hour last week, and highlighted his claim that New York spent $700 million last year to subsidize the income of poor workers from Burger King and MacDonald’s. The same argument is made nationally with memes about how much low-paid employees at Walmart and other companies cost taxpayers in food stamps, rent subsidies and earned income tax credits.
But if you want low-wage workers to have enough money to cover their needs, and you want the wealthy to cover the cost, then government aid, not higher wages, is the right way to do it. The rich pay the vast majority of the taxes that cover benefits to the poor. But poor and middle-class people suffer when low wages are hiked.
In 2015, the top 1 percent of earners in the United States paid about 46 percent of all federal income taxes. The top 20 percent paid 84 percent of those taxes. And these numbers are similar for state tax collections.
When we hike low wages, the rich don’t take the hit. The picture of business owners and chief executives taking wage hikes out of their pay or profits, economists say, is not what happens. Instead, companies reliant on low-wage workers adjust primarily by raising prices, but also by increasing automation.
And there’s nothing harder on the poor than price increases of goods and services dependent on low-wage workers. If farms, construction, manufacturers, fast-food restaurants, big-box stores and supermarkets increase prices, the effect on people who spend the vast majority of their income on basic needs is brutal. Poor people don’t just work at Walmart and Burger King, they spend there, too, and with a much higher percentage of their income than the rich.
Increases in wages will incentivize replacing workers with machines. The fast-food industry is already being offered machines that can make and sell burgers with practically no human help.
We aren’t going to abolish the minimum wage. And indexing it to inflation so that it creeps up steadily is a pretty reasonable way to go forward.
But a supply-and-demand labor market will never ensure workers have enough money.
Cuomo and his allies argue that taxpayers are subsidizing Burger King and MacDonald’s, and the companies should pay more instead. But in this equation, “taxpayers” are the rich and “the companies” will only pay more if they can get more from often-poor customers or save more by cutting jobs.
The best way to supplement the wages of low-skilled adults, if that’s something you want to do, is to increase the earned income tax credit: a bonus paid by the government to workers whose wages are too low for them to survive. It can be targeted to adults who need to pay bills. It rewards hard work without skewing the labor market. And it is mostly funded by the well-off taxpayer.
These are less political opinions than economic facts. Ford, Reagan, Clinton both Bushes and Obama expanded the EITC, and Warren Buffett has written passionately in support of expanding it. The fact that so many other leaders won’t act on these truths, or can’t understand them, is deeply frustrating.
Lane Filler is a member of Newsday’s editorial board.