Should we increase the minimum wage?

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.

BTW, the minimum wage in Australia is roughly double that of the US. I don't believe our cost of living is even close to being double of the US.

How much does it cost to live there? Unfortunately, it depends. What do you spend your money on? What sort of housing do you require? What will you have to pay in taxes? What currency will you be paid in? What one-time expenses will you have to incur?

See the assumptions for more information.

To use this table - a basket of goods and services that costs US$100 in the US would cost US$140 in Argentina

International Cost of Living Indices Country COL Index Country COL Index Country COL Index
Argentina 140 Australia 114 Austria 130
Bahrain 126 Belgium 127 Brazil 110
Canada 105 Chile 108 China 127
Colombia 83 Czech Rep 89 Denmark 133
Egypt 109 France 131 Germany 122
Greece 109 Hong Kong 143 Hungary 80
India 93 Indonesia 98 Ireland 123
Israel 132 Italy 128 Japan 182
Korea 117 Kuwait 122 Malaysia 101
Mexico 112 Netherlands 118 New Zealand 101
Nigeria 121 Philippines 88 Poland 100
Russia 123 Saudi Arabia 131 Singapore 126
South Africa 87 Spain 123 Switzerland 167
Taiwan 138 Thailand 105 U.A.E. 124
U.K. 140 U.S.A. 100 Venezuela 126
http://www.expatforum.com/Resources/icol.htm

It's easy to see why so many people choose to remain on welfare rather than go out and work. They have little to gain and almost everything to lose.

They would be doing a lot better and leading a better life if they go into crime. And that's why people opt to do so inspite of the risks involved.

If with hard work, people could actually live a half way decent life, maybe more would opt to do so.

That's Farmington, NM,Foxfyre. When Dys and Diane get settled into their new home in Albuquerque, how about we all do lunch some weekend? We would cover the political spectrum, and I bet you would love them. I do.

Oh, the topic. I'm not worried about where the money for a modest (150%?) hike in the minimum wage comes from. Wages are probably a very small part of the operating expense, to say nothing of the total costs of running, say a franchised fast food operation.