Minimum wage war reaches tipping point

Wages at the bottom of the scale have fallen in recent decades, even as worker productivity has grown.  Photo: AP

WASHINGTON, December 9, 2013 —As Senate Majority Leader Harry Reid pushes for a national minimum wage increase this Congressional session – and as the Seattle area suburb of SeaTac, Washington passes the highest minimum wage in the country last week at $15 an hour – the leaders of the District of Columbia City Council have decided they cannot wait for federal policymakers to address the problem of low wages. They got a boost from President Barack Obama and fast-food workers across this nation this week, as both the White House and low-wage workers pounded the pavement for a minimum wage increase.

The timing couldn’t be more appropriate, as last week’s Miller Center poll shows that lower-paid workers are suffering from higher economic anxiety than ever before, with 85 percent fearful that their families’ income won’t cover basic expenses (up 25 percent from the previous survey). 

Despite Mayor Vince Gray’s low-balling of $10 an hour, a small increase from the current $8.25 an hour, the D.C. Council approved a minimum wage this week of $11.50 an hour.  D.C. is joining two of its closest neighbors in MarylandPrince George’s and Montgomery counties – who approved $11.50 an hour increases in the past week. This is welcome news.  

Consider the impact. In D.C., full-time work at $12 an hour would be enough to lift two-thirds of low-income residents above 150 percent of poverty (or more than $27,000 for a family of three). 

Given the federal gridlock on this and many other important issues, cities and states should follow D.C’s example. It is one of the quickest policy ways to lift Americans out of perpetual poverty and bridge our yawning income inequality gap. This is also how we improve social mobility in America, currently the lowest in the developed world.

While the Washington area is somewhat unique – given the incredibly high costs of living, especially housing, and very wide income inequalities – the basic story is the same throughout the nation. Wages at the bottom of the scale have fallen in recent decades, even as worker productivity has grown. We can reverse this trend, and here’s why we should:

First, and foremost, raising the minimum wage helps ensure that the benefits of a recovering economy are shared as broadly as possible. We recognize that there is no one single answer to this challenge. Improving education and job training programs is critical. Making sure the working poor have access to health care and child care is important, too. All of this is more affordable when wages are stronger. 

Second, raising the minimum wage helps ensure that people who work are able to earn a reasonable living. The minimum wage has lost much of its purchasing power.  It hasn’t kept pace with inflation and is now lower than 1968 levels, a reality which is now incumbent upon us to fix.   

Remember that most minimum wage earners are adults working to support themselves and, likely, a family. Nationally, 9 of 10 low-wage workers are over 20 years and more than half are women. The typical low-wage worker provides over half of his or her family’s income. These hard workers deserve better.

Third, economists have studied the impact of minimum wage increases for decades and found that raising the wage floor provides an income boost for low and moderate-income households without leading businesses to cut jobs notably.

Noted economist Paul Krugman wrote this year that: “U.S. experience offers many ‘natural experiments’ in which one state raises its minimum wage while others do not…the great preponderance of the evidence from these natural experiments points to little if any negative effect of minimum wage increases on employment.”

This is not surprising for several reasons. A higher minimum wage means workers can buy more, thus creating more jobs. Low-cost retailers, such as Wal-Mart, are not doing as well as higher-end companies, such as Macy’s, because Wal-Mart’s customer base is suffering financially. Moreover, many low-wage jobs, such as fast-food restaurants, are location specific, meaning these businesses won’t be leaving town because of wage increases. Lastly, higher minimum wages also result in lower turnover, which is a tremendous benefit to businesses.

The vast majority of Americans get it that there is something wrong when private sector profits soar, yet many of us are having trouble keeping our homes afloat. Polls consistently show Americans support a higher minimum wage. And in D.C., even the business lobby gets it.  The D.C. Chamber of Commerce has come out in support of a $10 minimum wage.

All the reasons are there, then, for an increase in minimum wage. It’s good for the economy. It’s good for workers and for business. It’s good for social mobility, and it’s good for the American Dream. What a patriotic policy, then, and how fitting for the nation’s capital to consider it. Let’s hope D.C. implements it and soon.  

 


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Ed Lazere and Michael Shank, Ph.D.

Ed Lazere is the Executive Director of the DC Fiscal Policy Institute.  Michael Shank is a Senior Fellow at the JustJobs Network and Adjunct Professor at George Mason University’s School for Conflict Analysis and Resolution. 

 

Contact Ed Lazere and Michael Shank, Ph.D.

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