Tuesday, Sep 02, 2014
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Raising the minimum wage isn’t just fair — it’s good economics


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Some 47 million Americans live in poverty, and a key reason is the decline of the minimum wage. First established under the Fair Labor Standards Act of 1938, the nationwide minimum wage was designed to lift millions of American workers out of poverty and to stimulate the economy.

Unfortunately, it was not indexed to inflation, and big businesses — hostile from the start — fought, often successfully, to prevent congressional action to raise it. As a result, over the past 40 years, the purchasing power of the minimum wage has fallen sharply. If Congress had kept the minimum wage in pace with inflation over this period, it would today be $10.74. But it is $7.25 — about two-thirds of its previous purchasing power.

A major consequence is that increasing numbers of workers and their families live in poverty. The annual salary of a full-time American worker employed at $7.25 per hour is $15,080 — less than the official federal government poverty level for a family of two. The poverty level for a family of four is $23,550 — considerably beyond what a minimum-wage worker earns.

Another consequence of keeping the minimum wage low is that, by underpaying workers, corporations are shifting the real costs of doing business to the general public. According to a study released this October by the University of California and the University of Illinois, 52 percent of America’s fast-food workers receive assistance from public programs like food stamps, Temporary Assistance for Needy Families and Medicaid, thanks to their poverty-level wages.

Many people have recognized the negative consequences of letting the minimum wage dwindle to insignificance. The District of Columbia and 20 states have raised their minimum wages higher than the $7.25 federal rate. Congress is considering the Fair Minimum Wage Act, which would gradually raise the minimum wage to $10.10 in three steps and then index it to the cost of living.

The big objection to raising the minimum trumpeted by the corporations and their apologists is that raising the minimum wage would lead to a loss of jobs. But sophisticated studies by economists have reported little or no effect on employment by raising the minimum wage.

Why is this the case? One reason is that, with a higher wage, workers stay on the job longer, thus increasing labor efficiency and decreasing the cost of recruitment and retraining. Another is that two-thirds of minimum wage workers are employed by large businesses, which can easily afford higher wages.

Another objection is that low-wage workers are mostly teenagers who don’t have to support a family. But people over the age of 20 constitute more than 88 percent of the 30 million American workers who would receive a raise if the federal minimum wage were increased to $10.10 an hour.

Still another objection is that, in a struggling economy, raising the minimum wage would be bad for business. But, in fact, consumer spending drives 70 percent of the economy, and those at the lower end of the economic spectrum, out of necessity, spend a larger portion of their income than do the wealthy.

And so it makes good sense to raise the minimum wage to a level that adequately supports working Americans and their families. Until that occurs, we will live with the shameful fact that the richest nation on earth has millions of full-time employees earning poverty-level wages while giant corporations and the wealthy amass trillions of dollars at these workers’ expense.

Lawrence Wittner is professor of history emeritus at SUNY/Albany. His latest book is a satire on the corporatization of higher education, “What’s Going On at UAardvark?”

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