Commentary | Wages, Incomes, and Wealth

Increasing the minimum wage is smart for families and the economy

Originally appeared in the Sun Sentinel

Since the most recent increase in the federal minimum wage (from $6.55 to $7.25) nearly two years ago, inflation has been eating away at its buying power. The federal minimum wage was at its highest mark in 1968, worth more than 15 percent more than it is today. Since then, its value has followed a downward trend, interrupted by periodic upward adjustments when Congress took action, but never returning to its full previous value.

Today’s minimum-wage workers are better educated and more productive than their predecessors, but their wages are less adequate for meeting their families’ needs. A worker employed full-time at minimum wage earns $15,080, nearly $3,500 less than the federal poverty level for a family of three.

As we slowly recover from the worst economic downturn since the Great Depression, corporate profits have soared, but American workers continue to be left behind. In the absence of a vibrant economic recovery, economic forces are working against wage growth. Persistent, high unemployment puts enormous downward pressure on wages. The intuition on that is straightforward — with a queue of unemployed workers wrapping around the block for every job opening, employers don’t have to offer substantial wage increases to get or keep the workers they need. Decreases in wages (and corresponding decreases in family income) have increased child and family poverty and contributed to further increases in income inequality.

With persistently high unemployment rates and broad consensus among economists that rates will remain high for years, it will be a very long time before the economy itself generates upward pressure on wages. Increasing the minimum wage would help put American families on a more solid economic path, increasing their confidence as consumers, and in turn, their spending power. It would also move the United States towards a model of greater shared prosperity, where workers can increase their living standards through increased earnings rather than through increased debt.

Erroneous stereotypes persist of minimum wage workers as middle-class teenagers working part-time jobs. In fact, a majority of minimum wage earners are adults working many hours and living in low-income households. Of the 4.5 million minimum wage workers who directly benefited from the most recent minimum wage increase, more than half belonged to families with family income less than $35,000 a year.

According to the US Bureau of Labor Statistics, or BLS, in 2010, there were 4.4 million workers in America working at or below the federal minimum wage. The BLS notes that the greatest concentration of minimum wage earners are in the service sector — a sector that has seen considerable growth as the economy rebounds. As we put America back to work, we should ensure they are paid enough to support themselves.

Contrary to popular belief, increasing the minimum wage does not cause significant job loss. Economic studies looking at the employment impact of a minimum wage increase have become more sophisticated in recent years. Previous research showing a significant negative impact have been displaced by studies showing that an increase in the minimum wage has a small — and even positive — impact on employment.

Other research, including a study from the Federal Reserve Bank of Chicago, points to an increase in the minimum wage as an economic stimulus that benefits the economy as a whole. An increase puts additional income into the hands of workers who are likely to be struggling to make ends meet and therefore very likely to spend that extra money. While the magnitude of such a stimulus might vary depending on the structure of a local economy, it’s clear that the impact is positive. Thus, an increase in the minimum wage provides an excellent stimulus for the economy precisely when our economy needs it the most.

With evidence showing that an increase in the minimum wage stimulates the economy, leaves minimum wage workers and their families better off and does not cost jobs, the case for an increase in the minimum wage is clear.

Douglas Hall, Ph.D., is director of the Economic Analysis and Research Network at the Economic Policy Institute in Washington, D.C.

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