On January 1, Nebraska’s minimum wage went up to $12.00 an hour.
Minimum wage is the lowest hourly rate an employer can pay an employee, and each state can set their own minimum wage. The federal minimum is $7.25 an hour, established in 2009, and that sets the rate states must meet or exceed.
Having a minimum wage is controversial. Many economists believe that supply and demand do enough to ensure fair wages; if wages are too low, people find a different job. Any government-mandated increase has downstream effects, also called externalities or unintended consequences.
What are the pros and cons of raising the minimum wage?
Many individuals and families will move out of poverty. There is a decreased need for government welfare programs. The additional income has a multiplier effect in a community, meaning they spend more money at businesses, and those businesses will be better off. The economy grows.
Company morale is usually higher when employees earn more, so they are more productive. Employees are less likely to leave their jobs; therefore hiring, training, and relocation costs are lower for the business.
Of course, there are disadvantages of raising minimum wage. The obvious one is that many businesses will raise their prices. Increased prices means the cost of living goes up, so the increased wage may not buy that much more.
Many of our small businesses operate on a tight profit margin, and this increased cost may cause them to close.
There may be more competition for minimum wage jobs if they pay more. Overqualified workers may be taking jobs that were once held by teenagers or other inexperienced workers. With fewer jobs available, those entry-level workers have trouble getting their foot into the labor market.
Increased wages may also encourage many businesses, especially manufacturers, to automate. Their equipment purchases may displace even more workers.
Nebraska voters in November, 2022, passed a ballot initiative to gradually increase our minimum wage to $15.00 an hour by January 2026. It will increase $1.50 each year until then. After 2026, the minimum wage will go up according to the cost-of-living increase in inflation as measured the Consumer Price Index.
There are a few exceptions to the minimum wage requirement, and these can be found online at the Nebraska Department of Labor. The major exceptions are training wages for teenagers, people working in agriculture, child care, or for family members, and lower base pay for tipped employees. We’ll talk more about these exceptions next week.
Employers should already be paying more than the minimum wage, due to labor shortages in our area and throughout America. They should also be paying more because worker productivity increases every year, so businesses earn more. Instead, we see those increased earnings becoming higher executive salaries, higher dividends for investors, and soaring stock prices. In the past 10 years, a CEO’s pay at S&P 500 companies increased by more than $5 million to an average of $16.7 million in 2022, according to the AFL-CIO.
A minimum wage employee working full time would earn $24,960 a year before taxes. The national poverty line for a family unit consisting of two people is $19,720.00 per year, $24,860 for three people.
Isn’t it time for more of those business profits to be transferred to America’s workers?