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Mon 15 Sep, 2003 01:32 pm
Commentary > Opinion: "Economic Scene: A Weekly Column"
from the September 15, 2003 edition
New efforts surface to raise minimum wage
By David R. Francis
Democratic Sen. Ted Kennedy hopes to put his Republican colleagues in the Senate in an awkward spot. Any day now he intends to attach a raise in the national minimum wage to a must-pass appropriations bill.
If it reaches the floor, senators will have to register their vote on a measure popular with a large majority of Americans - but opposed by groups representing restaurants, hotels, retail stores, health services, and other major employers of low-wage workers.
The question, as put by proponents, is: Are conservatives really compassionate or just saying they are?
The minimum wage has been frozen at $5.15 an hour since 1997. The Massachusetts senator's amendment would raise the hourly rate 75 cents six months after passage, and another 75 cents a year after that.
It may be affixed to an appropriations bill that contains a hike in pay for members of Congress. "That seems to be a likely candidate," says Jim Manley, press secretary to Mr. Kennedy.
Since 1997, Congress has raised its own pay five times for a total $21,000 increase. That's nearly twice what a minimum-wage employee makes working 40 hours a week, 52 weeks a year. The minimum wage, in real terms, is worth 24.5 percent less than 24 years ago. And it's $4,300 below the official poverty line for a family of three.
"No one who works for a living should have to live in poverty," Kennedy says in a press release.
Chances for passage of a minimum-wage hike are considered slimmer in the House than the Senate. The Republican House leadership is opposed, says Mr. Manley. And it has more disciplinary might than the Senate leadership. But with an election next year, pressures for passage may build.
In the past, Republicans held a minimum-wage boost hostage to a tax cut or some other measure they sought.
But, as Manley notes, the Republicans "have shot their wad" as far as tax cuts go. President Bush says he will not seek further tax reductions.
With a minimum-wage hike blocked in Congress for the past several years, proponents have turned with considerable success to obtaining "living wage" requirements in states and municipalities. Since the
last federal increase in 1997, the number of states setting a higher minimum wage rose from six (plus the District of Columbia) to 12.
In addition, 110 local governments have living-wage provisions, most for their own workers plus employees of firms with contracts with the cities, towns, and counties. Some require employees to be paid about $10 an hour. Sixty university and colleges have also instituted living wages for workers.
The drive to get living-wage laws or ordinances will continue "no matter what the federal government does," says Jen Kern, director of the living wage resource center of ACORN (Association of Community Organizations for Reform Now), the leading campaigner for living wages across the country.
Economists always note that nothing is free in economics. If wages are raised by law, the extra costs must be covered somehow. It could be that prices of goods and services rise, or that profits diminish, or that fewer minimum-wage workers are hired. Possibly, some cost could be covered by lower turnover of low-wage workers and by greater productivity.
The Employment Policies Institute (EPI) in Washington, sponsored by industries heavily using low-wage workers, has in the past argued that minimum-wage hikes destroy jobs.
But economists have had a difficult time detecting detrimental effects from moderate boosts in the minimum wage.
A study of all 50 states and D.C. over a period of 19 years could find "no statistically significant relationship between the value of the minimum wage and employment growth in industries reliant on low-wage workers."
The study, by economists at the Center for Urban Economic Development, University of Illinois, Chicago, was aimed at the Illinois General Assembly. This summer, the legislative body passed a law creating a state minimum wage of $5.50 next June and $6.50 a year later.
"There was intense opposition to the legislation by the hotel and restaurant industries," says Ron Baiman, one author of the economic-impact study.
But low-wage workers, packed into a committee room and chanting, "We can't survive on five-one-five," won the vote.
The EPI now maintains that if the minimum wage is raised, it attracts more skilled, better-educated workers to take over those now better-paying jobs.
"Low-skilled workers are pushed out of the market," says Craig Garthwait, EPI's director of research. Since single mothers and others moving out of welfare often take minimum-wage jobs, they may face fewer job openings. "All the success we have seen in welfare reform could disappear," Mr. Garthwait adds.
Kern counters that she sees no evidence of major job shifting.
What are your thoughts relative to the legislation to raise the minimum wage from it's present level.
Of course it should be raised. I can't imagine how anyone could live on $5.15/hour, unless he or she still lives with parents.
We should be ashamed that the national minimum wage is so low!
If raising the minimum wage had no effect other than raising the minimum wage, I'd be all for it. The problem with the minimum wage, as with any form of price control, is that people respond to incentives. The higher price of labor will cause fewer people to offer jobs that pay minimum wage or a little more, and more people to seek them. In other words, raising the minimum wage will make the poorest of the poor jobless so the second-poorest of the poor can get a raise. I don't think that's a price worth paying.
I'm all for supporting the poor, but the minimum wage isn't a good tool for that. A better alternative would be to expand the earned income tax credit.
Not sure how that works, Thomas, except theoretically. If someone earns the minimum wage working, say, for a burger chain, will the job go away if the minimum wage rises? Yes, the increased cost of business could be passed on to the consumer, but avoiding that isn't a good rationale for people having to work for $5.15/hr.
D'artagnan wrote: If someone earns the minimum wage working, say, for a burger chain, will the job go away if the minimum wage rises?
It's impossible to tell in any one case. But it is quite safe to say that there will be fewer such jobs available as employers find it more profitable to invest in new machinery rather than labor, and as more employees find it in their interest to seek such jobs.
D'artagnan wrote: Yes, the increased cost of business could be passed on to the consumer, but avoiding that isn't a good rationale for people having to work for $5.15/hr.
But avoiding that isn't the rationale of the people who oppose a higher minimum wage, or the minimum wage in general. Their rationale is that if the price for a higher wage is increased unemployment among the very people you want to help, this is not a price worth paying. Especially not in these days, after the Clinton administration has "ended welfare as we know it", and joblessness comes with a lot more misery than it used to.
If you want people to have a higher income than their market wage, giving them money directly does just as much good for them without distorting price signals in the labor market -- which is why I prefer this alternative. For a specific example, consider how my own country does it. We have no national minimum wage at all. If an employer wants to hire you for $1.00 an hour, that's legal. But he won't find many takers, because the German welfare state provides generous transfer payments to the poor. This puts a floor to how much people are willing to work for. But more importantly, it also makes sure that people can work for very low wages and still afford the basics of life.
We can look which system works better for the poor by consulting
the CIA world factbook and comparing the income of the bottom 10 percent in both our countries. Result: Although per-capita income in the USA is higher than in Germany ($38000 vs. $27000 per year), the lowest 10% are doing much better in Germany than in America ($9600 vs. $6800 per year).
To repeat my last post: Supporting the poor is a good idea, but the minimum wage isn't the way to do it.
Well, I don't really disagree with you, Thomas. Unfortunately, the current leadership in this country is so dead-set against doing anything to "redistribute wealth" that raising the minimum wage is just about all that may be possible. Bush's tax cuts did NOTHING to help the lowest earners, except in the trickle-down sense he advocates...
D'artagnan
Quote:redistribute wealth" ??
Where have I heard that before?
Not sure; could be a lot of places. But I don't see it as inherently evil or socialistic, as some might. Taxes always, to some extent, redistribute wealth, and the Bush cuts certainly did this. Shifting it to the upper class, in this case...
I don't much worry about the lost jobs, because I don't think that is going to happen. Anyone paying minimum wage already has the minimum number of people on the payroll required to do the job anyway.
D'artagnan
Although I do not agree with the Bush tax cuts particularly since they were slanted towards the wealthy. That certainly cannot be considered a redistribution of wealth since all it did was giving people back their own money. There was however, a redistribution of wealth in the portion of the tax change that gave tax credits essentially giving people money that they had never paid in tax. That IMO was just another form of welfare in the guise of tax relief. What it did was picked the pockets of taxpayers.
a question...
why aren't wage increases just tied to the inflation rate? then we wouldn't have to revisit this subject every year.
Re taxation as a method of wealth redistribution: I'm not an economist, so I speak as an amateur in this regard. I do know, though, that when taxes are raised for one group and lowered for another, it is perceived as wealth redistribution. It would seem to follow then that if the tax rates are significantly reduced for one group and reduced far less for another, then that also qualifies as wealth redistribution.
And that, IMHO, is what happened during the recent round of tax cuts. Only this time, it was the wealthiest tax payers who benefited. The Bush crowd only yelps about class warfare when it's the other way around...
D'artagnan
Are you saying progressive taxation is redistribution of wealth. If so that has always been so in the US and I would suppose many other nations since tax rates are based upon level of income. Is that something you know as fact or just supposition on your part?.
au --
I haven't found anything on 'redistribution of wealth'. But I did find something about 'redistribution of income'. According to Gregory Mankiw's "Principles of Economics", a frequently assigned freshman textbook, it means any way in which the government alters the market outcome. By this definition, progressive taxation is a redistribution of income.
With regard to 'redistribution of wealth', it helps to remember that wealth is a stock (what you already own) while income is a flow (what you get per year). So in my opinion, a 'redistribution of wealth' would mean that the government takes stuff you already own (land, equity, etc.) and gives it to somebody else. So the estate tax and the capital gains tax are redistributions of wealth, but not the progressive income tax. But I have no reference to back up this opinion.
i would say that capital gains is income. you're taxed on the gains not the capital.
Trickle down doesn't exist. The wealthy hold on to every last cent they can, and don't pass anything on unless they're forced to.
ye110man wrote:i would say that capital gains is income. you're taxed on the gains not the capital.
You're right, and I was wrong. Thanks for the correction! As to your earlier question, I don't understand it either why the minimum wage isn't indexed to inflation, the average wage, or something like that.
After re-reading the article in au's initial post, I consulted my abovementioned economics textbook again, this time about the minimum wage. It says that hiking the minimum wage does lead to a measurable rise in unemployment among teenagers. So it seems possible that WalMart greeters and other low-payed employees actually make a little more than the minimum wage, and that it's mostly the teenagers earning some pocket money who're willing to work for the minimum wage or less. If true, this suggests that the minimum wage could be justified on the following theory: It helps people who need to feed a family, at the expense of teenagers for whom a job is a nice-to-have, not an essential.
Does this sound realistic to any of you Americans?
ye110man wrote:a question...
why aren't wage increases just tied to the inflation rate? then we wouldn't have to revisit this subject every year.
In Oregon we just started doing that. Some more info.
http://www.boli.state.or.us/technical/min-wage.html
I believe we have one of the highest minimum wages in the country. I also started my first job about six months before the bump to $5.50. I was actually at that minimum wage job for three years and the yearly increases made a huge impact on my life. It was movie theatre. The pay sucked but it was a good way to get through school.
Minimum wage is about double here to what it is in the US. And I don't believe the cost of living is double the US.
If there is a minimum wage perhaps there needs to be a maximum wage. Food for thought.
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