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That’s An Idea! Raise the Minimum Wage

Minimum Wage hardly kept pace with inflation (J. Bernstein)

In 2007, Democrats passed an increase in the minimum wage, and got George W. Bush to sign it by making it the scraps exchanged for more war funding. In the 2008 campaign, most of the Democratic candidates, including the eventual winner, expressed support for indexing the minimum wage to inflation, so it maintained its value in real dollars. But this never became a part of top-level Democratic legislating when they held both houses of Congress, and certainly not now, with Republicans in control of the House. Meanwhile, in this election season, Mitt Romney actually endorsed indexing the minimum wage to inflation, at least until his primary got a little dicey and he had to pull back.

So we have two parallel conversations: one in the context of election campaigns, where virtually everyone supports increasing the minimum wage, and one in the context of actual legislation, where the subject almost never comes up.

That’s why this editorial from the Editors at Bloomberg, of all thinks, is a useful corrective. First of all, the increases to the minimum wage in 2007, which were fully phased in by 2009, didn’t even rise to the level in real dollars of the minimum wage in 1968. A full-time minimum wage salary would still find you in poverty.

Tom Harkin has legislation to increase the minimum wage to $9.80 an hour by 2014, along with indexing to inflation, and the Bloomberg editors support it (doubly interesting, considering how their namesake, Michael Bloomberg, compared a New York City with a living wage to a Soviet dystopia):

It’s also becoming clear that many Americans are being forced to take lower-paying jobs and that a low-wage bias is creeping into the economy, as Bloomberg economist Joseph Brusuelas recently put it. In many cases, minimum-wage work is all that’s available, which may explain why such workers are older and better-educated than they were three decades ago. In 2010, nearly 44 percent of minimum-wage workers had either attended or graduated from college, up from 25.2 percent in 1979, according to the Center for Economic and Policy Research, a liberal think tank.

Raising the minimum wage won’t entirely solve the problem of anemic incomes, but it would help. Economists have long found that boosting the minimum wage can raise income levels for those earning just above the minimum. Employers, seeking to protect “wage ladders,” often bump up salaries for slightly higher-paid employees, too.

Business groups don’t like it because it eats away slightly at their profits by increasing labor costs. But never in the history of the minimum wage in the US has increasing it led to lost jobs, the key claim of these same business groups. The argument is that employers will have to cut jobs or raise prices if the minimum wage rises. The reality is that increasing the minimum wage puts more money in the hands of people who will spend it, creating a virtuous cycle and increasing economic activity broadly. At a time of still-depressed demand, there may not be a better way to stimulate this activity at no cost to the government, and without even any costs to the business sector. If a rising tide lifts all boats, why not lift the tugboats first, and see how the ocean liners fare (just to completely ruin a metaphor)?

While Congress isn’t likely to tackle this, states are increasingly looking at the minimum wage, and indexing to inflation, as a positive policy for their economies. Maybe the states will lead on this one.

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David Dayen

David Dayen