The federal minimum wage was increased in 1991 to $4.25 per hour, but this wasn't enough to make up for lost buying power. In 1992 dollars, the 1963 minimum was $5.74.
Republicans and their small-business supporters have always hated the minimum wage--House Majority Leader Richard Armey vows to fight minimum wage increases "with every fiber of my being." Republicans claim that the minimum wage is too blunt an instrument to fight poverty. When the minimum goes up, some businesses can more easily than others afford the higher rate. There's no level just right for everybody.
This isn't a bad argument, and traditionally it's led Republicans to support the "earned income tax credit" (EITC) as an alternative to minimum wage increases.
Taxpayers making only the minimum earn too little to pay taxes, but receive EITC refunds anyway. The government, in effect, subsidizes low wages. Republicans liked the idea, they said, because employers aren't forced to pay more than they can afford, while workers have an incentive to get off welfare (they're eligible for the EITC only if they have some earned income). In 1986 when Ronald Reagan signed an EITC increase, he called it "the best antipoverty, the best pro-family, the best job-creation measure to come out of Congress."
That was then. This is now. President Clinton supports the EITC and says increasing it was his proudest domestic achievement. So Republicans are now against it. Besides, the EITC costs the government money, and budget balancing is Republicans' raison d'etre. Senate Budget Committee member Don Nickles of Oklahoma has suddenly discovered the EITC is "an-out of-control federal spending program whose faults have been too long overlooked."
O.K., back to square one. Maybe it's time to look again at minimum wages. House and Senate Democrats have introduced legislation calling for a 90 cent increase, to $5.15. And a group of 101 economists, including three Nobel prizewinners and seven past presidents of the American Economic Association, earlier this month called upon Congress to enact the idea.
This is remarkable. Professional economists have almost always been skeptical of minimum wage laws, believing they reduce jobs at firms which could profitably expand if permitted to pay less. But while this argument makes neat theoretical sense, it's been effectively demolished by reports of "natural experiments" observed by Princeton economists David Card and Alan Krueger.
States, for example, that boosted minimum wages in the last decade apparently suffered no employment losses compared to neighboring states that did not have increases. In some cases, higher minimum wage states even had relative job gains. At least some prominent economists are apparently now persuaded.
But the fight's not over. Minimum wage opponents have another argument, sure to resurface. They claim that minimum wages don't really fight poverty, because workers who are most impacted are not poor. Minimum wage earners, they assert, are mostly teenagers or wives from non-poor families who work part-time for spending money or to supplement family income. So minimum wage increases only subsidize the middle class without combatting much poverty.
But this widespread view relies on faulty numbers. Bureau of Labor Statistics (BLS) data, showing large numbers of minimum wage workers coming from non-poor families, include only those who are paid the actual hourly minimum rate of $4.25. This leaves out two large groups:
-- Some factory workers (in the garment industry, for example) are paid for each piece sewn, but have actual earnings of only $4.25 or slightly above. Because their official rate is not $4.25, they're not included in BLS counts of minimum wage workers, though by law their piecework earnings would have to be adjusted if minimum wages increased.
-- Many workers in low wage industries are paid slightly above the minimum because employers maintain differentials to reward experience and responsibility. A beginning worker, for example, might earn $4.25, but one with several months' experience might get a raise to $4.30. A lead worker might earn $4.50. These (and others whose rates are slightly higher) are all "minimum wage workers," properly understood, and all would be affected by a legal increase.
If the minimum wage were raised to $5.15, those who now earn less than $5.15 would be directly affected. Because most low-wage employers would want to maintain skill and experience differentials, it's reasonable to expect that most workers now earning less than about $6.15 (a dollar an hour above the new minimum) would also get some wage increase within a very short period.
When all these affected workers are counted, the number of middle class teenagers and wives working for pocket change drops precipitously as a share of "minimum wage workers". Researchers at the Economic Policy Institute calculate that a minimum wage
increase to $5.15 would affect over 20 percent of all wage earners; only 1/4 of these would be teenagers.
Of those workers now earning less than $5.15, over half come from the poorest 20 percent of all families. And workers now paid less than $5.15 contribute not pocket change, but 49 percent of their families' annual earnings.
The EITC enhances labor-market flexibility while a higher minimum wage protects government revenues. Either would help offset increasing poverty. From this Congress, we may get neither.
THE PROGRESSIVE POPULIST