Economics

Targeting Better Wages

The implications of higher corporate minimum wages

Target
Mike Mozart/FLICKR Creative Commons

Last week, Target announced that they would be raising the minimum wage for their employees up to $9 an hour starting next month.

The announcement came at a time when a number of other American businesses have already made similar decisions. Earlier this year, major corporations such as Wal-Mart and T.J. Maxx reported their plans to hit the $9 mark in 2015. Some companies, including Gap and IKEA, are ahead of the game, having raised their minimum wages last year.

It seems as if a new trend is evolving. Rather than adjusting to legislation from the local, state or federal level, corporations are raising their own floors of how much their employers make.

So what does this trend mean, and what are it's implications?

For one thing, it represents the tightening labor market in a growing U.S. economy.

The American unemployment rate has been shrinking as of late. Nearly 3 million new jobs were added to the economy in 2014, the most since 1999. The unemployment as of this February is at a solid 5.5%. One of the reasons job hirings have skyrocketed is because companies have been able to hire workers for cheap. After the recession, there were millions of Americans on the sidelines of the labor market, eager to seize any opportunity that popped up. This made it easy for businesses to offer low salaries. Essentially, there was such a large pool of potential workers that businesses could pick and choose employees who would work for the least amount of pay

However, with less and less people without jobs, the tide is starting to turn. The pool of potential workers is now smaller, meaning that companies have to compete to hire workers. Now, it's the employees who can pick and choose the business that offers the highest amount of pay. This has been an inspiration for corporations to raise their wages. If a company pays more, it is more likely for them to attract people out of the shrinking pool of unemployed laborers.

Thus, the trend of corporations raising their minimum wages symbolizes that the American economy is at a crossroads. Rather than jobless people chasing employers, employers are chasing jobless people. Looking down the road, this means that job growth will slow, but wages across the board will rise.

Along with their economic implications, the trend of rising minimum wages may also fuel an interesting political debate.

Over the past couple years, it hasn’t been just businesses increasing their wages. Dozens of states implemented a hike to their minimum wages in 2014 and 2015. Numerous individual cities such as Seattle and Louisville also joined the push for higher wage floors by taking action on their own.

On the federal level, however, the issue of minimum wage doesn’t seem to be getting the same amount of attention. President Obama and his administration seemed to have shifted their focus from wages to worker rights with ideas such as paid sick leave. As for Congress? Well... they don’t even have the functioning capability to address such a controversial issue.

Yet the increases of minimum wages by corporations, cities and states may provide some encouragement for action in Washington.

Politicians in support of a high wage floor may argue that with all of these hikes happening across the country, there is no reason why the federal government should not join the movement. A raise from the current $7.25 federal minimum wage can ensure that no one is left out during the nationwide push for higher wages.

On the other hand, there will be those who argue that a federal increase is unnecessary. Some may contend that minimum wage should be left to the states and cities, so that they can tailor wage requirements to their specific region. Different places have different costs of living, so giving state and city governments flexibility and autonomy may be the best way to approach the issue of minimum wage. And if states, cities and businesses are taking care of things on their own, there is no reason for the federal government spend time and money to implement their own wage policies.

The efforts by businesses to raise wages makes it likely for the minimum wage debate to heat up again in Congress. Hopefully, that debate will produce legislation that hits the target of a stronger American labor market.

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