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Minimum Wage Can Stand Some Maximizing – EPI Viewpoints

Opinion pieces and speeches by EPI staff and associates.


Minimum wage can stand some maximizing

By  Amy Chasanov

For a while it looked like minimum wage workers might finally be getting a long-overdue raise. Now it appears that a vote on a minimum wage increase may be held up by partisan politics. In the meantime, poor working families keep struggling to meet their most basic needs.

It’s been seven years since Congress increased the minimum wage-the second longest period without a boost since the minimum wage was enacted in 1938. (During the last seven years, however, lawmakers have seen fit to give themselves six raises totaling $23,400.) Inflation has entirely eroded the 1996-97 increase. Today, a single parent with two children who works a minimum wage job earns only $10,700 a year — far below the poverty line of $15,670.

Most Americans believe it’s wrong that a parent can work fulltime and still live and labor in poverty. In a recent poll by the nonpartisan Pew Research Center, 77 percent of all Americans believe increasing the minimum wage is an important priority.

Sen. Edward Kennedy’s (D-Mass.) Fair Minimum Wage Act of 2004 proposes increasing the minimum wage from $5.15 to $7.00. Some Republican leaders and employer-backed organizations have come up with a disingenuous twist to their opposition, saying they’re against such an increase because it would harm the working poor. But would it help or hurt low-wage workers to put a few more dollars in their paychecks?

Fortunately, we don’t have to rely on guesswork-we’ve got history to guide us. Let’s look at what happened after the increase in the minimum wage that took effect in 1996 and 1997. Unemployment went down — not up — for workers across the boards, including those on the lowest rungs of the economic ladder. Wages and incomes increased for everyone — and, once again, low-wage workers were among the winners.

This experience doesn’t prove that raising the minimum wage caused the boom of the late 1990’s, although it did help that low-wage workers had more to spend on the necessities of life, pumping more money into the economy. But the economy’s good fortunes from 1996 through 2000 do suggest that raising the minimum wage isn’t the job killer than some conservatives claim.

And Sen. Kennedy’s proposal would have less impact on the entire economy than the 1996-97 raise. Yes, his proposed increase from $5.15 to $7.00 is larger in dollar terms than the 1996-97 increase, from $4.25 to $5.15. However, it would help a smaller number of workers — 7.4 million versus the last increase that helped 9.9 million workers. Because it would affect a smaller number of workers, it would have a smaller effect on the overall economy.

Opponents frequently argue that the minimum wage is poorly targeted, helping primarily teenagers and middle-income families who don’t need it. Not true. While the minimum wage is not perfectly targeted, it is one of the best policy tools available to lift low-income families out of poverty. Of those who directly benefited from the 1996-97 increase, 70 percent were adults (20 and older). The benefits flowed primarily to the bottom of the income scale, with 35 percent of the income gains going to the poorest 20 percent of working households. Those same groups would benefit under the proposed increase.

Another common myth is that employers will fire (or refuse to hire) low-wage workers. But look back to the last increase – and see that similar predictions never materialized. And while employers’ costs may increase, these costs can be offset by other benefits. The reason is simple: people aren’t widgets and increases in wage rates can have positive effects on worker behavior. For example, Business Week reports that Costco pays its employees significantly higher wages and benefits than its major competitor, Wal-Mart, but Costco boasts lower employee turnover, lower recruitment costs, lower training costs, and higher profits per employee.

Opponents have recently argued that it’s “classist” to believe that entry-level and low-wage workers cannot get a raise without a minimum wage increase.

Unfortunately, recent research shows that for some low-wage workers-particularly women, minorities, and the least-educated-the minimum wage affects not just their current earnings, but also their lifetime earnings potential. A nontrivial fraction of workers spend significant portions of their first 10 post-school, working years in jobs paying at or near minimum wage, so their current and future wages are intricately linked to the minimum wage.

While many Congressional Republicans may oppose an increase to $7, they are likely to offer an alternative. Be wary of the “sweeteners”-like corporate tax breaks or state opt-out provisions-that might be offered to appease the business community.

The 1996-97 minimum wage increase was part of the “Small Business Job Protection Act of 1996” that included an estimated $16 billion in corporate tax relief over 10 years. A minimum wage proposal during the 2000 presidential election cycle included an estimated $123 billion in tax reductions over 10 years, almost 11 times the value of the proposed minimum wage increase over that same time period.

Now is the time to raise the minimum wage, but we cannot afford further corporate tax breaks given the budget deficit and outrageously high corporate profits. Nor should we let states opt out of a minimum wage increase. Allowing such a loophole would erode the minimum wage floor, eventually rendering a federal minimum wage meaningless and leaving the incomes of millions of low-wage workers at risk.

It’s time to give low-wage workers a raise without giving away the store to the special interests who want to hold the needy hostage to the greedy.

Amy Chasanov is deputy policy director of the Economic Policy Institute.