Running the numbers: Raising the minimum wage in Iowa makes sense

With a bill to raise the minimum wage in Iowa over a two-year period to $8.75 per hour ($18,200 annually) stuck in the Iowa House, it is an opportune time to consider the economic and moral impact of such an action. In 2014, approximately 3 million people were working in the U.S. at, or below, the current federal minimum wage of $7.25 per hour. Working full time at this wage produces an annual income of $15,080. The Census Bureau's poverty line for a household composed of one adult and two children is $19,096. As a result, a single parent who is working full time at the minimum wage with two children lives in poverty and needs to depend on additional government assistance - like tax credits, food stamps, and Medicaid - in order to survive.

Some opponents of raising the wage point to the manner in which poverty is measured and the way costs vary from region to region. And indeed, the official measure of poverty used by the Census Bureau is not as accurate as it could be. The measure of poverty is based on the cost of a minimum diet multiplied by three, but in tabulating income the measure does not consider noncash benefits such as food stamps and earned-income tax credits that free up resources that can be spent on non-food items. Thus, the measure underestimates the resources available to a person. But in determining the amount of income needed to avoid poverty, the official measure is based only on the cost of obtaining adequate food and does not consider costs like child care, out-of-pocket medical bills, and work and transportation costs, all of which reduce disposable income and affect the quality of life.

In an attempt to determine a more realistic and accurate measure, Dr. Amy Glasmeier at MIT, a professor of urban planning, has developed a set of measures that takes these factors into consideration and establishes what is needed for a living wage across the country at both the state and county levels. In Iowa generally, for 1 adult with 2 children, she calculates that a living wage would need to be $25.81/hr. ($53,685 yearly). Clearly, even raising the minimum wage (as proposed by President Barack Obama) to $10.10/hr. in stages (let alone the proposed $8.75/ hour in the Iowa bill) would not provide a living wage.

Although some worry that raising the minimum wage would adversely affect businesses and the economy, recent studies have shown those concerns to be overstated. Twenty-nine states and the District of Columbia already have minimum wages above the federal level. A 2013 review of research since the 2000s (by the nonpartisan Center for Economic and Policy Research) concluded that the 'evidence points to little or no employment response to modest increases in the minimum wages.” One study, for example, found that a 10 percent increase in wages produced an overall rise in prices of no more than 0.4 percent. Another study found that raising the wage to $10.50 (higher than the proposed level) would likely cause the price of a Big Mac to go up only by a dime. In fact, many businesses may offset the cost of wage increases through lower employee turnover (saving on recruiting and training new workers) and increased productivity. Costco, a large retailer, recently announced a starting wage of $13.00/hr. and the highest hourly salary of $22.50/hr. Costco management says that their higher salaries allow them to attract and keep high-quality employees, while keeping the amount of theft, fraud, and errors low when compared to similar companies.

Rather than harming the economy, because low-wage workers need to spend most of their incomes to survive, increasing the minimum wage will actually serve as an economic stimulus, increasing demand and helping to offset the rise in wage costs. Even the Congressional Budget Office's 2014 report, which indicated that some jobs could be lost (0.3 percent of total employment), estimated that a $10.10 minimum wage would produce a net overall rise in real income of $2 billion and lift 900,000 people out of poverty. In addition, raising the wage to $10.10 would save taxpayers $4.6 billion in spending on food stamps.

Raising the minimum wage not only makes economic sense, it is the moral thing to do. Do we want to live in a society in which a single parent working full time to provide for her family must live in poverty and be dependent on outside support to survive? Although raising the minimum wage will not drastically change our society's gross wealth disparity (for that we need tax reform), at least it will help make life more tolerable for the poorest among us. Such considerations may explain why a majority of Americans and Iowans support raising the minimum wage.

' Thomas W. Hill, of Cedar Falls, is an Emeritus Professor of Anthropology at The University of Northern Iowa.