In 1964 President Lyndon Baines Johnson officially declared war on poverty. Since then the country has worked toward the goal of eliminating poverty. While eradicating poverty completely may be unattainable, Americans have spent decades discussing how best to lower poverty rates in our nation. Some suggest that removing obstacles to free enterprise would allow the engines of capitalism to do the job. Others have endorsed a structured approach that fills in the gaps sometimes created by a free market economy.
Research in 2012 by national public policy center, Demos investigated the impact of a voluntary wage hike in just a single industry – retail – to model how higher wages could help lift citizens out of poverty and benefit the employer and the local business community as well.
Researchers proposed a wage floor of $12.25 per hour or $25,000 per year for full-time, year-round retail workers at just the largest retail stores (those with 1,000 or more employees). Based on their research model, such an increase would produce a positive ripple effect throughout the community.
For the family living at or below the poverty line, almost 100 percent of the monthly paycheck is devoted to covering basic expenses. There is very little disposable income or savings. That means that there is unsatisfied demand among lower income families. If these families had disposable income, business models predict that they would likely put those extra dollars right back into the economy in retail spending. The Wharton School of Business suggests that just a one dollar hike in wages would produce an added $4-$28 in monthly retail sales for local businesses. They predict that a 25 percent pay raise could result in a 2.6 percent jump in sales.
This research concluded that even after accounting for employers’ potential decision to raise prices, the fact of disposable income would still wind up creating new jobs. It’s called the multiplier effect and in simple terms it means that whenever extra dollars get spent, new jobs are created.
According to the model, the effect on consumers would be minimal. They would spend only pennies more on each shopping trip. If a 50 percent wage hike were passed along in the form of higher prices, consumers would spend an extra .15 cents per trip and less than $20 more per year. A 25 percent wage increase would cost consumers just .07 cents per trip and less than $9 per year.
Raising wages doesn’t have to equal lost jobs or a hit on the profit margin. Higher wages fuels spending and that creates more jobs. If wages were increased just by the largest retail employers, it could generate an extra $4-$5 billion in annual sales. And it would lift hundreds of thousands of people out of poverty. You can raise wages and maintain profitability and low prices. This not only benefits low income members of your community but local businesses as well.