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Economics 101: Should we raise the minimum wage? Follow the money
During my Economics class discussion on circular flow, the diagram of money that moves in and out of the U.S. economy, “Jack” asked two keen questions: Why do minimum wage workers at Westfield Valley Fair make a different wage? In addition, does raising the minimum wage help the economy? Teachers love that kind of critical thinking, and so do fellow students. Jack’s classmates leaned forward to hear my response.
I started by asking the class what city Valley Fair belonged to. One student correctly answered that both San Jose and Santa Clara share the mall. So, why the wage disparity?
Unlike many U.S. municipalities, cities in California permit local wage laws. In Santa Clara County, a growing income gap and exploding home prices have sparked grassroots labor campaigns to raise the minimum wage. Cities like San Jose and Santa Clara have been leading this fight for the past five years. However, because each city sets its own minimum wage, workers in the San Jose part of the mall earn $12 an hour, while their Santa Clara counterparts make $11.10.
Answering Jack’s first question was easy enough, but the second required thinking that is more critical. As a teacher, I instill in my students the need to approach an issue from multiple perspectives before forming an opinion.
Opponents of raising the minimum wage insist it hurts small businesses, raises prices and eliminates jobs. Some also assert that minimum-wage work mostly comprises second or third sources of income (such as middle-class teens doing summer jobs) instead of full-time employment. Lastly, they say, the issue is simply beyond the scope of local government.
Supporters of raising the wage are equally adamant that it increases productivity, boosts morale and eases the financial burden of workers. Moreover, it is a simple way for local officials to address income inequality.
Which side is right? I asked my students to consider circular flow. What happens when minimum-wage workers earn more money: Do they invest it or spend it? The class correctly answered, “Spend it.” Great! Then, since 72 percent of our economy is based on discretionary consumer spending, I discussed the ripple effects of more disposable income for minimum wage earners.
With an increased minimum wage, these workers buy more goods and services, resulting in higher business revenues, increased hiring, and more taxes to invest in schools and infrastructure such as transit, roads and bridges. Employees also feel better about themselves and become more productive. Plus, they are less likely to rely on the social safety net, further protecting the expanded tax base.
Jack picked up the argument and ran. He pointed to our robust economy since 2012, when San Jose and Santa Clara raised their minimum wages. Restaurants are a great bellwether, and they have been busy as ever, enjoying healthy profits and hiring more workers. A win-win for employees and businesses.
On the Santa Clara City Council, we are pushing to increase the minimum wage even higher, to $15 an hour by 2019. We want to join cities nationwide that understand the power of putting more money in the pockets of people who will spend it.
As for Jack’s original question, I am hoping it soon becomes moot. Instead of scratching their heads over wage disparity, workers at Valley Fair (and throughout the valley) deserve simply to feel good about their jobs. Including how much they are paid.
Dominic J. Caserta, a teacher at Santa Clara High school and the city’s vice-mayor, is running for the Santa Clara County Board of Supervisors in District 4, which includes Santa Clara. He wrote this article for the Santa Clara Weekly