Raise Wages Voluntarily, America

Not long ago, I read a fine economic analysis of an across-the-board minimum wage hike in the New York Times. The bottom line: up to $12 per hour, it will do more good than harm, but at $15 per hour, as some legislators have suggested, it might suppress job growth. I was encouraged by the precision of this estimate not only because it was based on studies, but also because it was advocating a happy medium.

The author, Alan Krueger, comes from the liberal side of the political aisle: a professor of economics and public affairs at Princeton University and former chairman of President Obama's Council of Economic Advisers. He was taking into consideration the possibility that forcing all U.S. employers to raise minimum wages dramatically could make it unaffordable to maintain their employment at current levels. He pointed out that, while Washington remains gridlocked on the issue of raising the minimum wage, states are acting on their own. More than half the states in the union, representing nearly two-thirds of the workforce, have already raised their minimum wage above the federal mandate. Four of them are "red" states--Alaska, Arkansas, Nebraska, and South Dakota, raising the minimum to as high as $9.75 per hour. As Krueger pointed out: the people of this country support higher wages. They know how badly we need to pay our employees more than they now make--for the same of the economic system we are trying to keep afloat.

"When it is set at a moderate level, the minimum wage has little or no effect on employment," he wrote. "I am confident that a federal minimum wage that rises to around $12 an hour over the next five years or so would not have a meaningful negative effect on United States employment. One reason for this judgment is that around 140 research projects commissioned by Britain's independent Low Pay Commission have found that the minimum wage "has led to higher than average wage increases for the lowest paid, with little evidence of adverse effects on employment or the economy." A $12-per-hour minimum wage in the United States phased in over several years would be in the same ballpark as Britain's minimum wage today. Raising the minimum wage to $15 an hour (though), is a risk not worth taking."

Overall, though, I would like to think I have a better suggestion. There is no question, the private sector is starting to wake up to the benefits of higher wages and acting to raise them on its own. Company after company is voluntarily raising wages, in full knowledge that it might cut slightly into short-term profits, but will create an energized and committed workforce, an engine for larger profits in the long-term. The Huffington Post keeps a running tally, in an ongoing series of articles, on private companies who are the bellwethers of what needs to become a movement. Why? Because each company can raise wages to precisely the level it can afford, and the smallest companies, who can't afford to raise wages without going out of business, can pass. There are many reports of this happening already.

A report from Berks County, Pennsylvania describes how, in a region of the country that could hardly be described as booming, many companies are raising wages. Giant Food Stores increased its minimum wage at its outlets around Reading, and elsewhere, from $7.25 (the federal mandate) to $9 in June. As many have pointed out, Wal-Mart, TJ Maxx, Starbucks and Whole Foods have been raising starting wages to $9 or $10 per hour. The wage hike at Giant will affect 10,000 part-time store associates across all of its outlets, with more than 1,000 of them in Berks County.

The Reading Eagle quoted another local retailer, Albert Boscov, about the raises his company approved: "We had a pretty good year last year and when that happens we like to share it with our employees. And it's the right thing to do."

There is one important caveat.

I am troubled by some small business owners who say "my margins are so tight, I can't afford to give anyone a raise". Frankly, if you can't improve your product, improve your service, make the place cleaner, more attractive, and if you can't add a couple of pennies to your burgers or your coffee, don't be in that business. Businesses, to be viable must make a decent profit and pay fair wages. That's a must. That's why we have child labor laws (unlike some places in Asia). Workers should not be penalized because your business model doesn't add up. Try really hard to make a better mouse trap. If that business doesn't respond, try something else. In the end you owe it to yourself to make it a win-win proposition for you, your family and your employees.

The best possible outcome for minimum wage-earners would be a nationwide movement among employers to encourage their brothers and sisters in the for-profit sector to raise all wages as much as possible, not just at the minimum level. Let's hope that change of mind and heart is what is taking hold right now.

Peter Georgescu is the author of The Constant Choice. He can be found at Good Reads.