Let Justice Roll

Raise minimum wage to boost economy

By Oren M. Levin-Waldman and Charles J. Whalen
Guest essayists, Rochester Democrat and Chronicle, 2/9/07

After close to 10 years of no increases in the federal minimum wage — almost a decade of eroding take-home pay for America's lowest-paid workers — the effort to raise the minimum wage is caught in a partisan stalemate.

Democrats in the House see the minimum-wage hike as a way to assist the working poor. Republicans in the Senate demand the chance to tack on new tax breaks for businesses. In fact, both parties are missing the point: The minimum wage is, and always has been, about shoring up the middle class.

Proponents of the wage increase note that the current minimum wage of $5.15 an hour provides a full-time worker less than 60 percent of what the federal government considers a poverty-level income for a family of four. The House plan to raise the minimum wage to $7.25 over two years would get such a family about even with the poverty level.

Opponents forecast widespread small-business shutdowns and massive layoffs of low-wage workers. In this scenario, raising the minimum wage will backfire on those most in need by sending labor costs skyrocketing in the restaurant industry and other sectors where many employers operate near the breaking point.

Those refusing to support the wage increase also argue that most minimum-wage earners are not primary breadwinners. Their arguments don't fare well under close scrutiny, but placating these critics is what's behind the push to tie the wage hike to business tax cuts.

Although most supporters and critics of a boost in the minimum wage focus on workers who earn the current minimum, such employees make up less than 3 percent of the work force. Without question, they are the ones who will most directly gain from a wage increase, but they won't be alone.

Others would benefit as well because America's labor market contains long-established "wage contours," which means that employees and employers want pay intervals between job categories. Raising the wage floor sends a ripple through those contours, giving an upward nudge to the wages received by a large fraction of the work force. According to our estimate, the wage-contour impact of a minimum wage will affect one in three workers.

Lawmakers who crafted the minimum-wage law in the midst of the Great Depression understood the concept of wage contours. At a time when "cutthroat competition" pulled wages down, the federal wage law sent a shockwave in the other direction — through the ranks of the working poor and into the middle class. The minimum wage was more than an anti-poverty program; it also helped stimulate consumer demand, which was a godsend to business.

The same result can come from a minimum-wage hike today. In 2005, Florida initiated the first in a series of scheduled increases to its minimum wage. According to a recent study by Bruce Nissen of Florida International University, the wage hike had no negative impact on Florida jobs. In fact, in the wake of the minimum-wage hike, unemployment plummeted statewide.

Closer to home, the Fiscal Policy Institute produced a report last month showing that three-quarters of a million workers in our state benefited from New York's minimum wage hikes since 2005.

As in Florida, the institute found no negative effect on jobs, which is, of course, good news since the Rochester area has seen scant job growth since the U.S. expansion began in late 2001. The extra federal wage hike certainly won't pinch western New York employers, but area wage-earners will surely welcome the added pay.

The minimum wage findings in Florida and New York are good for the poor and for business. The key to the success lies in the fact that the minimum wage is a broad labor-market issue — a middle-class issue. Chalk it up to wage contours or hard-nosed economic reality, but it is time for Congress to raise the minimum wage for the sake of the middle class.

Levin-Waldman is professor of public policy at Metropolitan College of New York and author of The Case of the Minimum Wage. Whalen, of Geneva, is an economist and editor of Perspectives on Work, a journal published by the Labor and Employment Relations Association at the University of Illinois. E-mail them at Levin-Waldman@metropolitan.edu.

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Our view on minimum wage: Poorest Americans have waited too long for a raise
Congress finally acts, but only at the cost of a needless tax giveaway.

USA Today Editorial, 2/1/07

Voters who thought Democrats were now the unchallenged masters of Capitol Hill got a quick reality check this week as the Senate lurched toward the end of a debate on the minimum wage.

In the House, the Democrats had the political muscle to pass a long overdue increase in the minimum wage, which has been stuck at $5.15 an hour for a decade and is now badly eroded by inflation.

In the Senate, though, the Democrats' margin is too narrow to overcome a filibuster by Republicans determined to hold the minimum wage hostage to tax cuts.

Today the Senate is expected to approve a hybrid bill that raises the minimum wage at last — but ties it to an $8.3 billion package of unnecessary tax cuts for small business.

The aggressive tax-cutting that the GOP-led Congress indulged in over the last decade without matching spending cuts has already weakened the Treasury and enriched many who needed little enriching. Last year, GOP leaders tried unsuccessfully to tie a minimum wage increase to cuts in the estate tax, which affects a tiny sliver of the wealthiest Americans.

That was outrageous, but what the newly Democratic Senate is doing is only slightly less unseemly. In the same decade that the poorest working Americans have gone without a raise in the minimum wage, Congress approved an estimated $312 billion in business tax cuts, a substantial chunk of which were for small businesses. The argument that they need more relief now is weak.

Further, while some of the Senate's tax provisions are directed at restaurants and other small businesses that might hire minimum-wage workers, there's little attempt to target tax cuts to those who pay the lowest wages. And — shocking! — some of the tax cuts seem to have little or nothing to do with the minimum wage: capital gains tax treatment for S corporations, tax treatment of bank directors' stock, and so on.

The increase in the minimum wage is already designed to go lightly on businesses that would have to pay it. It would raise the minimum from $5.15 an hour to $7.25 in three 70-cent steps over two years — plenty of time to adjust. Minimum wage workers — at least 5 million by some counts — wouldn't get the full raise until the spring of 2009.

The arguments against the minimum wage are familiar and unpersuasive. Critics argue that it will cost jobs, but the economic literature suggests job losses are a minimal threat. The last increase in 1997 was followed by a surge in low-wage employment.

Some opponents argue that wages should be decided exclusively by the free market.

But the nation decided otherwise in 1938, when Congress created the minimum wage so the poorest workers would have a chance at a decent living. And it's hard to recall similar free-market complaints about the tax code, which is all about picking winners and losers — homeowners over renters, for example, or investors over workers.

As is usual when there's paralysis at the federal level, states have moved ahead on their own, and more than half now have minimums higher than the federal level — including six whose voters approved the hikes in ballot measures last November.

It's long past time for Congress to do the same and to do it without wasteful tax benefits for the unneedy.

Eventually, the House and Senate will have to agree on a final bill. Democrats, along with the five Republican senators and 82 GOP representatives who voted for a clean wage increase — should hold their ground.