Why It’s (Past) Time to Raise the Federal Minimum Wage

It’s been three years and two months since the last phase of the latest federal minimum wage increase kicked in. By the time it did, the wage had already lost nearly 5% of the value it had when Congress increased it.

This always happens with federal minimum wage increases. And when Congress finally overcomes the barriers to passing another increase, it doesn’t fully make up for the value lost over time.

If the minimum wage were worth as much as it was in 1968, it would be $10.55 an hour instead of just $7.25 — less than what’s needed to lift a family of two with a full-time minimum wage worker above the poverty line.

A pair of bills pending in Congress — Senator Tom Harkin’s and Congressman George Miller’s Fair Minimum Wage Act — would keep the wage from losing value, though not fully make up for what it’s already lost.

The bills would increase the minimum wage, in steps, to $9.80 over a two-year period. They’d also index it to the CPI-U — a commonly-used Consumer Price Index — so that it would subsequently rise with the cost of living.

In other words, to borrow from the Economic Policy Institute, they’d fix it and forget it, as 10 states already have.

A bill introduced somewhat earlier by Congressman Jesse Jackson, Jr. would raise the minimum wage immediately to $10.00 an hour, thus almost living up to its title — the Catching Up to 1968 Act. It too would then index the wage.

None of these bills stands the chance of an iceberg in hell so long as the Republicans hold a majority in the House and at least enough seats in the Senate to block a substantive vote on whatever they choose.

But say, for the sake of argument, that Congress passed the more moderate Harkin-Miller bill some time early in the new year.

And say, for the sake of argument, that whoever is sitting in the White House signs it. An open question if that’s Mitt Romney. Not so if Obama, assuming, as we may, that the Democratic party platform reflects his views on the issue.

The law would boost take-home pay for nearly 19.5 million minimum wage workers in 45 states — and in the District of Columbia, which pegs its higher minimum wage to the federal.

Still, an hourly wage of $8.10 next year seems a paltry thing. Why do so many advocates invest so much in a minimum wage increase?

I’m not asking this rhetorically. It’s a question I’ve asked myself — and so tried to find answers for. Best I’ve come up with follow.

The relatively modest, phased-in increase reflects political realities. A significantly larger increase, however justified, could cause some potential supporters to balk.

Even the modest increase would be good for minimum wage workers, of course. But they’re not the only ones who’d benefit.

An estimated 8.7 million workers earning somewhat more than the new minimum wage would get raises because of the so-called “spillover effect.”

In other words, employers would adjust their pay scales upward to preserve a differential between their lowest-paid workers and those who, for various reasons, have been getting more.

Demos, in fact, argues that raising work standards, including the minimum wage, would “raise the floor for all working people.”

The notion here, I think, is that there’d be an spillover effect. If $9.80 became the rock-bottom minimum, many — though far from all — employers would peg their entry-level wage somewhat higher. Other wages would get a bump-up as a result.

The impact on struggling working families could be very large indeed because we’re seeing significant growth at the low end of the wage scale.

Our recovery has created 2.7 times more jobs in lower-wage occupations than in those at mid-level or higher, according to a recent analysis by the National Employment Law Project.

This may not be a temporary phenomenon. Many of the jobs where the greatest growth is projected over the longer term fall into the low-wage category, e.g., retail salespersons, home care aides, food preparation and food service workers.

There’s a sound economic argument for ensuring that these folks earn a living wage. Same as the argument for increasing the minimum wage now.

More take-home pay will put more money into the economy, as families spend at least some of the extra on goods and services. More demand will move businesses to hire more people — at least for positions they can’t automate or offshore.

There’s also a fairness argument. When employers take what Restaurant Opportunities Centers United calls “the low road,” we taxpayers in effect subsidize their excess profits because under-paid workers enroll in safety net programs to help meet their basic needs.

Some state-level studies have put hard numbers on this cost shift — very large numbers.

Finally, there’s what I guess we could call a justice argument — or perhaps a values argument.

Demos frames it nicely. “Americans believe that hard work should be rewarded — people who go to work every day should not then be forced to raise their families in poverty.”

A large majority of Americans do believe this — all demographic groups, except for Tea Partiers and Fox News junkies.

Suggests that if our federal policymakers were more attuned to their constituents than their deep-pocket donors, we could get that overdue minimum wage increase passed.

10 Responses to Why It’s (Past) Time to Raise the Federal Minimum Wage

  1. Garry says:

    Are you sure on your numbers as I believe I have seen numbers adjusted for inflation that say minimum wage if adjusted for either inflation or productivity would be around $17 an hour since 1970?

  2. Kathryn Baer says:

    I’m quite confident in the number I cite. As the source I link to indicates, it comes from the Bureau of Labor Statistics inflation calculator. Adjusting the minimum wage for productivity growth is different. According to the Center for Economic and Policy Research, the minimum wage would be $21.72 if it had kept pace with productivity growth since 1968. Hope this helps.

  3. Me says:

    Funny, every time the minimum wage is raised we see problems with unemployment. We are seeing and feeling the effects of the last raise on minimum wage right now, with unemployment at a stagnant rate, despite the Obama cooking of the books.

    Yes, there are other factors to the recession, but a major contributor has always been raising the minimum wage. So, yeah, lets raise it and see if we can push unemployment up to 50 percent. Brilliant.

    Minimum wage was never meant to be a means to support a family. Yet liberals never can see that point. They destroy the economy then look to do it again, double down on failed policies. Markets can and do set a fair wage scale. Government never has.

  4. Garry says:

    Simply put you are wrong as the ONLY time since the minimum wage was instituted that it has been raised when jobs dropped was the 2008/09 time frame which had NOTHING to do with raising the minimum wage. Go back and look at history and you will see all the CONS from U.S.(China) Chamber of Commerce, Heritage foundation, CATO, etc, etc claiming it will costs jobs and FACTS are jobs increased after minimum wage hikes except for the last one and that drop was the Great recession and not the hike in wages. Since 1980 the overall size of the economy in America has roughly doubled and the share of that increase that went to the top 1% was around 90%. If the share of income has stayed the same as 1980 and I am not talking about soaking the rich with taxes their income would have gone way up but the average working class person would be making $16K per year more in wages and spending that money driving our consumer economy.

  5. Kathryn Baer says:

    Thank you for this fact-filled response, Garry.

    I’d just add that we have some interesting economic studies that looked at the job situation in neighboring states after one of them increased its minimum wage. They found no job losses in the states with minimum wage increases. In some cases, job growth in these states was higher.

    Other studies have looked at the impact of minimum wages on small businesses. They found greater growth –both in the number of these business and in the number of workers they employed –in states that had increase their minimum wages above the federal than in those that hadn’t.

    It should go without saying that more take-home pay for low-wage workers is good for the economy. Also that recessions cause job losses, not the other way around.

  6. Garry says:

    Thank-you Kathryn. For your information it is my field and I often have fun debating with the CONS using FACTS which they are not used to. I own my own business providing Financial Counseling on a contract basis for the DOD around the country. I am right now in Arizona working with U.S. Army recruiters doing retirement and benefit assistance.

  7. Kathryn Baer says:

    Garry, you just answered the question I wanted to ask because it’s obvious you really know what you’re talking about. And I do appreciate your effort to introduce FACTS to some who aren’t used to them — or perhaps aren’t used to people like you who come back at them with FACTS.

  8. […] undoubtedly add fuel to the fire when/if Congress gets around to seriously considering the bills I wrote about last […]

  9. […] bill introduced in Congress last year would have raised the minimum wage to $9.80 by 2014. The President […]

  10. […] I’ve written before, the bill would raise the federal minimum wage to $10.10 an hour by 2016 and then link it to […]

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