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Low-Wage Workers Deserve Pay Raise—Viewpoints | EPI

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Low-Wage Workers Deserve Pay Raise

by Thomas R. Michl

An interesting debate over raising the minimum wage — one that likely will influence congressional action — is taking shape in Albany.

State Seator Nicholas Spano (R-Yonkers) and State Assemblywoman Catherine Nolan (D-Queens) have introduced bills to increase the state minimum wage from its current $4.25 an hour to $7.65.

Their case is being watched closely by both sides in the current congressional crusade to raise the national minimum wage — by a dollar, to $6.15, by September 2000 — who feel that a raise for workers in New York may result in higher wages for low-wage workers across the nation.

In New York alone, up to one million workers would benefit by an increase to $7.65. And contrary to a popular misconception, they are not middle-class teenagers working for gas money. Most minimum wage earners in the United States are adults, more than half are female, and about half work full time.

They work for wages that have lost substantial purchasing power since the 1970s. Even with the proposed increases at the federal level, they will still earn 13 percent less than the 1979 minimum wage adjusted for inflation.

The last increases in the federal minimum, in 1996 and 1997, helped reverse the alarming downward trend in the purchasing power of wages earned by the lowest paid workers — or, those in the bottom 20 percent of the wage scale.

After falling by more than 2 percent from 1989 to 1996, their inflation-adjusted wages rebounded by 6 percent from 1996 to 1998. Strong labor markets and the statutory increases in the minimum wage worked together to bring about this welcome development.

In New York, however, the real wages of the lowest-paid workers fell by more than 8 percent from 1989 to 1996, and only rose by 2 percent from 1996 to 1998 — not nearly enough to make up the lost ground.

That is why proposals to raise New York’s minimum wage deserve serious consideration.

Seven states and the District of Columbia set minimum-wage levels higher than $5.15, including Vermont, Massachusetts and Connecticut. The Connecticut rate, $5.65 an hour, is already scheduled to rise to $6.15 in January 2000.

Critics claim that the minimum wage destroys jobs, but the evidence does not support them.

The job prospects for young workers and other groups who are likely to earn low wages have been improving despite the last round of federal legislation. And that’s not surprising since economists who have studied the effects of minimum-wage laws on employment have increasingly found them to be small or nonexistent.

A highly respected study, conducted by economists David Card and Alan Krueger, examined the effect of New Jersey’s 1992 minimum-wage increase and found that among fast-food restaurants, employment was unaffected.

The work of Card and Krueger has changed the way economists think about the labor market.

Instead of the simplistic view that employers always respond to higher wages with layoffs, economists now have additional proof that higher wages lead to lower turnover rates and greater worker productivity. Greater productivity, in turn, allows firms to absorb higher payroll costs and reduces the likelihood of layoffs.

Economists David Neumark and William Wascher have challenged the Card-Krueger study using alternative data supplied by the Employment Policy Institute, a think tank funded by the fast-food restaurant industry. They claim that employment was reduced in New Jersey restaurants after all. Critics of minimum-wage legislation have seized upon this alleged refutation.

But on closer inspection, it turns out that there is really no contradiction between these studies.

The Neumark-Wascher data show that while there may have been a decline in weekly hours for the average worker in a New Jersey restaurant, there was no change in the number of jobs, exactly as Card and Krueger maintained in the first place.

The reduction in weekly hours, around one hour, was far too small to prevent the wage hike from raising weekly incomes.

This should be encouraging to supporters of the minimum wage because it shows that even based on data supplied by the fast-food industry, a traditional foe of mandated wage increases, the New Jersey legislation had the intended effect of raising the take home pay of low-wage workers without reducing their employment opportunities.

There is some reason to believe that the chances for an increase in the minimum wage in New York state, and elsewhere, are better today than they have been in the past. Under its new president, Denis Hughes, the New York State AFL-CIO has joined other labor groups in placing the minimum wage issue at the top of its legislative agenda.

That’s good news for low-wage workers who stand much to gain from a well-deserved raise.


Thomas R. Michl teaches at Colgate University in Hamilton, NY and is an associate with the Economic Policy Institute.

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