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Making it on minimum wage: Would a higher wage help workers or kill jobs?

  • The Wichita Eagle
  • Published Saturday, Feb. 23, 2013, at 8:59 p.m.
  • Updated Saturday, Feb. 23, 2013, at 8:59 p.m.

Minimum cost of living*

Child care$560
Health care$303
Total $3,013

*Per month, for two adults and one child

Source: Economic Policy Institute

Median cost of living*

Health care$352
Total $5,274

*Per month, for two adults, one child

Source: Center for Regional Economic Competitiveness

Steven King knows the difference between necessities and luxuries.

King has lived on minimum wage for four years. Minimum wage is $7.25 per hour. At half time, that’s $7,540 per year. At full time, it comes to $15,080 per year, minus payroll taxes. Last year, King said, he earned $8,400 working in a program at the Salvation Army.

King lives an almost ascetic life. He rents a tiny apartment over a garage off East Lincoln, pays his utilities, and walks or takes a bus. He has little money for much beyond that. The government stretches his wages by giving him $200 a month for food and a phone with four hours per month. He’s not complaining. It beats the two years he spent sleeping in the bushes near the Hyatt Regency Wichita.

“It’s literally paycheck to paycheck,” he said. “I pay bills with one paycheck and rent with the other. It’s just really, really tight.”

In 2011, 27,000 people, or 3.4 percent of Kansas hourly workers, earned minimum wage, according to the U.S. Bureau of Labor Statistics. Another 29,000, or 3.6 percent of hourly workers, received tips and could be paid the minimum of $2.13 per hour. If they don’t generate enough tip income to reach $7.25 an hour, the business is required to make up the difference.

In his State of the Union address, President Obama proposed raising the minimum wage to $9 per hour in stages by 2015 – and then indexing it to inflation.

The arguments for and against that idea will sound similar to the last time Congress raised the minimum wage, when the increases were phased in between 2007 and 2009.

The White House maintains that modestly increasing the wage helps workers, boosts the economy by getting more money into the hands of those who will spend it immediately, and helps employers by cutting down on worker turnover. Several polls show that the majority of people support the idea.

The National Federation of Independent Business, which represents 350,000 small businesses, forcefully rebuts the Obama argument. It maintains that raising the wage will kill jobs by increasing costs for small-business owners without really helping the workers.

They argue that minimum-wage jobs tend to be second or third jobs in a family, are often for teenagers and are part time, meaning the increase, so painful to the business owner, doesn’t do much to increase family income.

Economists come down on both sides of the argument, acknowledges Malcolm Harris, an economist and professor of finance at Friends University, who tends to dislike the minimum wage.

“The national impact is fairly clear,” he said. “It drives up youth unemployment, particularly minority unemployment.”

Teen unemployment is 22.1 percent, nearly three times the unemployment rate, while the black teen unemployment rate is 40.3 percent.

“Those numbers won’t get any better if you raise the minimum wage,” he said.

The minimum-wage workforce does tend to be young: Half are younger than 25. And two-thirds of minimum-wage jobs are less than 35 hours a week, according to the Bureau of Labor Statistics.

But that still means that half of minium-wage jobs are held by adults older than 25, and a third of those earning minimum wage are working at those jobs full time.

The leisure and hospitality industry – typically restaurants and hotels – has the highest proportion of workers with hourly wages at or below the minimum wage.

Adam Mills, CEO of the Kansas Restaurant and Hospitality Association, said that restaurants as a whole already have a small profit margin, less than 4 percent.

“If the minimum wage goes up, then something else has to give,” he said. “It’s a combination of higher prices and fewer people working. We are not a high-profit industry. … A restaurant owner has to rub two nickels together and figure out how to get 11 cents out of it.”

And, he noted, wait staff who depend on tip income often earn far more than $7.25 an hour. He estimated it at closer to $11 to $15. The Kansas Department of Labor shows a median annual salary for waiters and waitresses at $18,280 per year.

Melad Stephen, who owns several upscale restaurants, said that raising the minimum wage could have a big impact on his business. He starts his inexperienced employees at minimum wage and raises it as they grow more experienced. He estimated that his entire staff, other than the wait staff, earns an average of between $9 and $10 an hour. Setting $9 as the minimum would push his whole wage scale up.

“What’s going to happen is that if the labor is high, we’ll have to cut somebody’s hours,” he said. “When things slow a bit, we’ll send people home and have somebody do more.”

Local businessman Johnny Stevens also runs a low-margin business, the Pavilions at the former Kansas Coliseum, but he decided to pay his workers at least $10 an hour.

For Stevens, it’s all about getting and keeping good people.

“Truthfully I’m losing money in those pavilions, but I feel like that I have to pay them more,” he said. “I’m better off in the long run because they’re more productive.”

He said it only makes business sense to pay workers enough to keep them interested in working. If he paid minium wage, he’d get workers who would quit after a while and file for unemployment.

That pragmatic argument is one made by the liberal National Employment Law Project.

“Raising the minimum wage is closely related to a sharp reduction in turnover and a boost in productivity,” said policy analyst Jack Temple.

But he also argues that most minimum-wage workers are employed not by local businessmen, but by national chains that have gotten quite profitable in recent decades.

This would simply take a little of that profit from the chains and give it to the workers – a tiny step toward reversing a 30-year slide in low-income wages – who would then spend it in the local economy, he said.

Since the recession, the minimum-wage workforce skews older. Rachel Hinel, a case worker for the Salvation Army, estimates that 70 percent of her clients work.

“We get a lot of people who work in fast food or motels or do seasonal construction work,” she said.

It’s possible to make it on minimum wage, she said, but everything has to go right. Sometimes, she said, people don’t budget well or don’t make good personal decisions, but often it’s something beyond their control.

“They’ll get a medical bill, or their car breaks down,” she said. “They fall behind and can’t seem to get caught up.”

For them it’s a matter of doing without.

One woman, who asked not to be named, lives with a nephew, but even so, she said, her minimum-wage pay is pretty limiting.

“It doesn’t leave much,” she said with a sigh. “There isn’t much besides groceries and gas, and clothes, sometimes. We might go out every couple of weeks to Taco Rio, that’s under $10 or $15, for a kind of reward.”

Reach Dan Voorhis at 316-268-6577 or dvoorhis@wichitaeagle.com.

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