I’ve often noticed that fast-food franchisees have a far better understanding than most politicians of what it means to live life at the lower end of the income spectrum.
I was discussing states’ recent minimum wage increases with a client.
“The politicians who are pushing those numbers don’t understand that they are going to cost my employees $30,000 a year in government benefits,” the franchisee said.
He’s right. A parent with two young children whose income is below specified limits can qualify for as much as $30,000 in government benefits and tax credits, according to a study by the Atlanta Fed. These means-tested benefits include Supplemental Nutrition Assistance, child-care subsidies, housing rental vouchers, Medicaid, health care subsidies, and the Earned Income and Child Tax credits. If a low-wage worker gets a raise, they risk losing it all — aka falling over “the benefits cliff,” the study says. Rising wages actually leave these workers with less money in their pockets.
This unintended result also has an indirect impact on this franchisee’s ability to run his business. He considers a sizable number of his workers underemployed because they refuse promotions to management. Even though they might earn $5,000–$10,000 more a year, any pay raise he can offer doesn’t make up for the benefits they would lose. This robs him of one of the most powerful tools for incentivizing his people to work hard and rise in the ranks — a pay raise. These employees are holding their income down in order to keep their home economy up.
The benefits cliff is a growing issue. Half the states implemented minimum wage increases this year, and seven now require employers to pay more than twice the federal minimum wage of $7.25.
I’m not proposing keeping minimum wages low. I don’t know the solution to this problem. Maybe workers who get raises should be allowed to keep those benefits for a period of time after they cross that income threshold, or perhaps the benefits should phase out less abruptly for recipients with kids. I don’t know the answer.
Workers need to be paid more than the $7.25 an hour federal minimum wage set by Congress 15 years ago. Inflation has eroded its buying power by 46% since Congress passed it in 2009. Again, my clients already understand this better than the politicians. Ask franchisees if they would consider paying their workers $7.25 an hour, and they invariably say, “That’s not enough.”
My clients know the federal minimum wage is sadly outdated. They are standing at the intersection of government policy and the real lives of hourly workers. They understand the on-the-ground impact of policy changes and economic volatility better than anyone else I know. They see what happens in a low-income household when gas goes from $4.10 a gallon to $4.80: Employees can’t afford to make essential car repairs, and they don’t get to work on time. They know what a single mother does when the patchwork of child care arrangements she has cobbled together falls apart. She misses work that day.
It’s interesting to me that my clients see the grassroots impact of social policies and economic trends more clearly than the people making the policies. What if the politicians looked more carefully at the consequences of their decisions for people at the lower end of the income spectrum? What if they took into account the day-to-day realities that franchisees are seeing? That could only be an improvement.
Because right now, they’re not getting it right.
