It’s time minimum wage was raised for workers, economy
Little evidence exists to suggest that modest increases in the minimum wage lead to job losses, so the battle ahead in Congress is really one between free market orthodoxy and basic human decency. We would invest our money in decency.
In his State of the Union address lastmonth, President Obama called upon Congress to boost the federal minimum wage to $9 an hour by 2015, up from the current $7.25. The wage would rise in steps and after hitting the maximum in two years would thereafter be indexed to inflation.
The call surprised both Democrats and Republicans and is one of the strongest signals yet that the president is confident that the economy is coming back.
Democrats are racing to put together a plan to push the proposal through the Legislature, but the Republican leadership was right on message.
“When you raise the price of employment, guess what happens? You get less of it,” House Speaker John Boehner said. “At a time when the American people are still asking the question, ‘Where are the jobs?’ why would we want to make it harder for small employers to hire people?”
The speaker is wrong, but let’s put this into perspective.
Adjusted for inflation, the minimum wage in the late 1960s was about $10 per hour, and it was even higher in the 1980s. President Obama’s call to raise it to $9 is far from excessive. The state of Washington is already higher. (Michigan is at $7.40)
The proposed new rate translates to a little less than $19,000 a year before taxes, still below federal poverty thresholds. Even with the Earned Income Tax Credit and SNAP benefits, it’s nowhere near a comfortable living.
And then there’s the issue of fairness. We all took a bath in the Great Recession. Average income from 2007 to 2009 fell 17.4 percent, the largest two-year drop since the Great Depression. The wealthy took an even bigger hit – the top 1 percent in income lost more than a third of their incomes.
But things have changed. From 2009 to 2011, average real income per family grew by 1.7 percent, but most of us won’t have noticed since all of that was concentrated in the top 1 percent. The rest of the country, on average, lost income.
As we’ve written previously, growing income equality isn’t just unfair, it’s detrimental to the U.S. economy. While the wealthy generally save a lot of their income, the people who make the least consume most of their income.
When those folks are hurting, like they are now, their inability to spend money slows the economic recovery.
Which brings us back to Obama’s proposed minimum wage increase. More money in the pockets of minimum wage earners translates into more money circulating in the economy.
Decades ago, it was conventional wisdom among economists that increases in minimum wages led to job losses. That’s changed over the past 20 years, beginning with the research of economist David Card, who in the early 1980s published one of the first studies to find that changes in the wage had no discernible effect on employment.
A study released last month by the Center for Economic and Policy Research sought to explain that. It found that increases in minimum wage were generally offset by reductions in labor turnover, improvements in organizational efficiency and small price increases.
Conservatives may argue that the market should set wages, but they argued the feds should let GM fail, too.
Working people need a raise. Congress should give them one.