How to cut the costs of a higher minimum wage

Robert Stack is the president of a non-profit called Community Options, which aids the disabled in finding housing. Most of his revenue comes from Medicaid payments. In an article in the Wall Street Journal, he claims that a minimum rate hike would be devastating for his organization:

If President Obama’s advocacy for increasing the minimum wage succeeds, without a calibrated increase in Medicaid rates, we would be forced to shut down in most of the states where we pay $8 an hour. Why? Because the increase would add $3.1 million to our costs. […] Even if my executive staff works for free, that would still not cover the cost. We’d have to pull out of states like Texas, Kentucky, Tennessee, New Mexico and South Carolina, and we’d never open in Mississippi, where we know that our organization’s services are much needed. Other states in which we operate, such as New York, New Jersey and Pennsylvania, will see services compromised, as there are caregivers we now employ who will gravitate toward other industries, like food and hotels, where the pay will be higher.

Okay, obviously it is tough to judge the validity of testimonials like this. Any organization with low-wage employees have an incentive to, if not lie, exaggerate the harm that would be done to them if the minimum wage were increased. And let’s be real — is his organization really going to have a worker shortage because workers will gravitate elsewhere? If that isn’t happening now, why on earth would it happen if the minimum wage increases? Moreover, even places that pay low wages do not really struggle to find employees. There is always someone looking for a job.

That said, this article made me wonder if the non-profit industry would indeed be most hard-hit by an increase in the minimum wage. If an organization truly makes no profit, then any increase in cost would have to somehow translate to a decrease in services.

However, I believe there is a solution to this problem (or at least a way to lessen the pain that it may cause). As it turns out, most of the people that earn the minimum wage do not live in poverty; in fact, 63% of those who earn the minimum wage are second or third earners in households who’s income is more than three times the poverty income. It seems to me that a way to majorly cut the costs of a minimum wage increase would be to only offer it to those who really need. Indeed, it would not be all that difficult for an employers to acquire income tax paperwork from anyone who wished to receive the higher wage. Of course, to prevent hiring discrimination, employers would have to wait until after they have hired a person to determine if they are eligible for the higher wage.

Actually, something like this already happens in Michigan; if you’re under a certain age, you only have to be paid a fraction of the minimum wage the adults get. So it must be feasible legislation.

I won’t try to claim here exactly who should be eligible for a higher minimum wage, but it’s something to think about.

One thought on “How to cut the costs of a higher minimum wage

  1. Corbett

    This post hints at what I consider to be one of the most important issues in American economic policy: distribution of benefits. I am often criticized for my conservative voting views and am told that I am a heartless person who doesn’t care about the poor, disabled, elderly etc. This is not true. Rather, I believe that the current way America gives out benefits is so inefficient that the additional burden/dead weight loss placed on those who don’t receive the benefit outweighs the benefit received by those who actually need it. Indeed, I know a person who is on food stamps, but is easily paying for his out-of-state Michigan tuition, buys new clothes all the time, and essentially flaunts money. Making distribution of benefits more strict is a very important thing.

Comments are closed.