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The Minimum Wage:  An exploration of the economics, ethics,
and consequences for businesses and workers

by Ed Loewenton

© 2018  Edward Loewenton 
Please read copyright notice.

In this series:
Part I  -  Living on a minimum wage
Part II: Economic arguments in favor of a Livable Wage

Proposed future topics:
 Economic arguments against a minimum wage: the employers’ point of view; the simplistic nature of the minimum wage debate, and the need for modifiers and adjusters
* A bigger picture: Other factors, greater forces, cyclic, secular, evolutionary;
* Automation and the guaranteed national wage
* Social and individual factors affecting workers' earning power

Part I: Living on a Minimum wage

May 24, 2018

     A bill raising the Vermont minimum wage from the current $10.50 to $15 per hour by 2024 has been vetoed by Governor Phil Scott. The increase would have been implemented each January 1 in six increments of $.60 to $.90, after which the minimum wage would increase each year by the lesser of 5% or the rate of inflation (currently 2 - 2.4%.)
From Senate Bill 40:
January 1, 2019: $11.10 .
January 1, 2020, $11.75. 
January 1, 2021, $12.50.
January 1, 2022, $13.25.
January 1, 2023, $14.10.
January 1, 2024, $15.00,
Each subsequent January 1, the minimum wage rate shall be increased by five percent
High school student must be paid the current minimum wage under the new law minus $3.00.

 Businesses have argued against the proposal: It would force raises for higher-paid workers, render them uncompetitive, and more. Politicans and employers say “my heart says yes out of compassion for the working poor, but my head says no [out of concern for employers]”. So let’s use our heads and look at the numbers. How will the proposed wage increase affect families at the low end of the wage scale? How will it affect businesses paying minimum wages (next in this series of articles)?

     For a realistic look at the effects of low wages on workers, let’s look at the minimum liveable wage, based on actual expenditures, rather than the politically defined minimum wage.

     MIT's Department of Urban Studies and Planning defines the living wage as
"… the minimum income standard that, if met, draws a very fine line between the financial independence of the working poor and the need to seek out public assistance or suffer … housing and food insecurity. ... (T)he living wage is perhaps better defined as a minimum subsistence wage..." The numbers are based on working 40 hrs/week, 52 weeks/year. There is no allocation for vacations, leisure, entertainment, savings, or emergencies. (http://livingwage.mit.edu/states/50 ).

     Using 2016 data, MIT calculated the minimum hourly living wage in Vermont at $29.85 for one working adult with 2 children (a common family model in Vermont). Methodology is presented in detail. The livable wage for a single adult is $11.26, but allows only $644/month for housing, a doubtful number in Lamoille County.

     Another source, the Vermont state government’s "Vermont Basic Needs Budgets and Livable Wage Report" for 2017,
calculates a living wage of $32.52 for our rural Vermont family of one parent and two children, and $17.64 for a single adult living alone.

     Our family of three living on the wages of one person paid $15/hour would clearly require public assistance. Do the math and see if you could live on $15/hour, if you were the breadwinner in this family.

     But let’s allow “Business A” to pay the current minimum, $10.50. To prevent our model family from sliding into destitution, we have created a large industry of social welfare agencies, public and private.
     We tax the general population, including businesses generous and not, to provide the family with their services. Those of us with a conscience also engage in private charity.

     Bluntly, private charity and the Federally assisted state budget provide the income for our hypothetical family that employers will not (or claim they cannot) pay to their employees. Taxpayers subsidize not only poor working families, but those businesses in the state who don’t have the comparative market advantage or efficiency to pay a liveable wage, or whose business models rely on masses of low skilled, quickly trained and easily replaced workers.

     What we have here is welfare for businesses. Recall the criticisms leveled at Walmart over the years for letting Medicaid pay for the medical care of their full-time workers.

     When a dollar is paid, not to the low-wage employee but rather to a provider of assistance, that money is diluted as it flows through the filters of agency salaries, facility costs, and administrator pay. A public dollar distributed in cash or other help by an agency is much smaller when it reaches its intended poor working beneficiary. It might be a more effective use of public money to pay the difference between wages and needed income directly to the workers.

     There is an additional cost imposed on low-paid workers seeking public assistance. Petitioning for charity is an occupation that has been called the “excessive bandwidth” of poverty, the high cost of being poor. The working poor must moonlight at the unpaid job of filling out forms, waiting in lines, making endless phone calls, sometimes only to find there is nothing for them at the end of the process. It saps the energy that should be used to raise children, participate fully in the community, and just fully enjoy life.

     If a wage is to be mandated by law, it ought to provide a basic but dignified living, not correspond to some arbitrary number. It should be paid directly to those earning it, not through the wasteful and uncertain filters of the state apparatus.

     And, of course, there are many among us who are not able to work or who produce at best a reduced output, and who will always require social assistance. This is the population for whom the network of social agencies has a necessary and irreducable role. Those who work steadily and reliably at jobs with real economic value should not be among them.

About the author:
I was a business owner and employer from 1977 to 2008, making and marketing wooden toys, decorative home products, and kitchen products throughout the U.S. and overseas, and packing and shipping fragile and valuable goods for a variety of clients. I continue to make one toy product. I had an e-commerce retail website (turnertoys.com) from 1999 to 2011. I have a part time psychotherapy practice in Stowe, and play (and teach) saxophone when the opportunity arises.



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