Raise the Minimum Wage. Farrell, Chris, Business Week Online, 10/19/2006,
p. 5
Database: Academic Search Premier
Abstract: The article focuses on the minimum wage in the U.S. Several
economists, including Kenneth Arrow, Clive Granger, Lawrence Klein, Robert
Solow, and Joseph Stiglitz, called for in a petition to raise the minimum
wage, put together by the Economic Policy Institute in Washington. The
economists are requesting the U.S. Congress for wage floor raise because the
minimum wage was still $5.15 an hour since 1997.
Raise the Minimum Wage
SOUND MONEY
It's the least that can -- and should -- be done for low-income workers. But it
still won't be enough to restore purchasing power
Congress, raise the minimum wage. That's what 664 economists -- including
Nobel laureates Kenneth Arrow, Clive Granger, Lawrence Klein, Robert
Solow, and Joseph Stiglitz -- called for in a petition put together by the
Economic Policy Institute, a liberal think tank based in Washington. And
they're right.
After all, the current wage floor is $5.15 an hour -- and that's where it has
been since 1997. And inflation has eroded the purchasing power of the
minimum by some 20%. The economists want the wage floor raised a
relatively modest amount over several years -- to $7.25 an hour. The
economists are also suggesting that the minimum wage be indexed to
inflation.
The traditional rejoinder to any suggestion for a higher minimum wage has
been that it kills off low-income jobs. Indeed. economists have long held that
the minimum wage is a classic case of good intentions and bad outcome. A
1990 survey of 1,000 economists found that some 63% agreed with the
statement that minimum wages increase unemployment among young and
unskilled workers. On his Cafe Hayek blog, George Mason University
economist Richard Russell expresses disgust with hundreds of his petitionsigning peers. In a post titled "Hall of Shame" Russell asks, "How can you
sign your name to something like that and call yourself an economist?"
SHIFTING OPINION
The truth is, economists are increasingly divided about the employment
impact of a wage floor. For instance, in a 2000 follow-up to the 1990 survey,
Weber State University economists Dan Fuller and Doris Geide-Stevenson
learned that only 45% of those surveyed agreed that there was a nefarious
trade-off between the minimum wage and jobs. That's a big shift in
professional opinion in a mere decade.
The turning point came with a 1994 paper by economists David Card and
Alan Krueger, "Minimum Wages and Employment:
A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania."
The economists found that employment actually rose in the New Jersey fastfood restaurants they surveyed after the state hiked its higher minimum
wage; fast-food employment declined somewhat in Pennsylvania, which kept
its minimum wage unchanged. Over the years a cottage industry of empirical
and theoretical literature has emerged, some challenging and others
reinforcing the employment perspective of the Card-Krueger results.
That's all to the good. Economic progress comes from empirical studies like
these. Now, although I'm no expert, my sense from the economic literature
and commentary is that the job impact from a modest increase in the
minimum wage is negligible to minor -- even among teens, the most
vulnerable group.
LONG-RUNNING DEBATE
To be sure, an increase from $5.15 to $7.25 is a 40% jump. But I don't see
much, if any, fallout with the increase phased in over the next three years
[assuming that's the plan Congress finally backs. Certainly, it's the one on
the table]. And even at that higher $7.25 rate, the minimum wage would be
still well below its 1968 peak of $9.31 [in 2006 dollars]. Basically, the
increase restores the buying power of low-income employees. Brad Delong,
economist at the University of California at Berkeley, has thoughtfully
emphasized that the key idea when thinking about the effect of the minimum
wage is balance. The $7.25 goal meets that standard.
The federal government has been debating the concept of raising the
minimum wage for years, and in a Republican-dominated Congress it hasn't
gotten many votes. [A three-year, phased-in increase in the minimum wage
to $7.25 was attached in the late summer to a bill that eliminated the estate
tax. It went nowhere.] Meanwhile, 22 states and the District of Columbia
haven't waited on Congress and the Administration: They've already raised
their minimums. And on Nov. 7, Election Day, voters in Arizona, Colorado,
Missouri, Montana, Nevada, and Ohio will vote on whether to hike their
state's minimum wage, according to the Economic Policy Institute.
Still, the real complaint about the minimum wage is that it won't do much to
improve the earnings of low-wage workers. That's why raising the minimum
wage a modest amount should be coupled with improving the earned-income
tax credit [EITC], the nation's most successful and largest anti-poverty
program for working families. For instance, the EITC is credited with
increasing the labor force participation rate of single mothers with children
following welfare reform. And it lifts more children out of poverty than any
other government program, according to research by economists Nada Eissa
of Georgetown University and Hilary Hoynes of the University of California at
Davis.
LEFT BEHIND
President Ronald Reagan got it right when he hailed the EITC -- now a 31year-old program -- the "best anti-poverty, the best pro-family, the best jobcreation measure to come out of Congress." But the EITC can be streamlined
and made better. For instance, it's a complicated credit, with numerous and
often confusing eligibility requirements. It also could be made somewhat
more generous. That said, the traditional bipartisan support of the EITC has
been sadly eroded, with Congressional Republicans more concerned about
fraud and abuse in the EITC than with making it an even better anti-poverty
program.
Look, low-income workers have been left behind during the past several
years. That's why an increase in the minimum wage gets a sympathetic
hearing in many parts of the country, and not just in union-dominated cities
or counties. Polls show that a majority of Americans favor raising it. Even in
many so-called Red States there is a sense that the bottom of the income
spectrum deserves improved rewards to work after all these years. And it's
difficult to get policymakers to put aside their partisan differences to work
toward a new, enhanced EITC.
This is one of those times when what is realistically possible has to take
precedence over what might be more desirable. Put it this way: One wage
increase in almost nine years isn't too much to ask, is it?