Higher Minimum Wages: Economic Support May Not Yield Action

Washington DC

Source: http://www.flickr.com/photos/patrick_nouhailler/

More than seventy economists agree: the minimum wage should be raised to $10.10 per hour. Seven Nobel Laureates are among those who signed the letter asking for the increase, which was sent to President Obama and Congressional leaders. The economists favor the hike because it has been five years since the federal rate was raised to its current $7.25 per hour level. The economists propose to increase the minimum wage by 95 cents every year for the next three years until it reaches $10.10 an hour. Afterwards, the rate should be indexed to keep it in line with inflation, the economists said.

The letter backs a proposal by Senator Tom Harkin (D-Iowa) and Representative George Miller (D-Calif.), which also sets out to establish a minimum wage of $10.10. Yearly income for minimum wage earners would increase from approximately $15,000, to about $21,000. “This policy would directly provide higher wages for close to 17 million workers by 2016,” the letter states. “Furthermore, another 11 million workers whose wages are just above the new minimum would likely see a wage increase through ‘spillover’ effects, as employers adjust their internal wage ladders.”

The letter explains that this will primarily benefits the adults of working families, especially women. “At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum-wage increase would provide a much-needed boost to the earnings of low-wage workers.”

For Congress to raise the minimum wage, there will need to be bipartisan support during an election year. Democrats have made social reform policies a prominent part of their 2014 midterm strategy, including a higher minimum wage. The parties are divided on the issue, which was highlighted on CBS’s “Face the Nation” on January 5.

Senate Majority Leader Harry Reid (D-Nev.) was the first guest. Reid said the Senate “should pass raising the minimum wage,” along with extending unemployment benefits, and passing measures that grow the middle class. This was not possible “unless the Republicans in Congress decide they should do something for the American people,” Reid said. “We cannot have a country that’s paralyzed because of a group of people, the group of people who are like Tea Party-driven Republicans in Congress, not Republicans.”

Later, Representative Matt Salmon (R-Ariz.) appeared on the program. Salmon explained he is against raising the minimum wage because doing so “hurts the very people we’re trying to help.” Salmon said that most people on minimum wage are between 18 and 28, and this is the same demographic hurt most by the recession. “And history has shown us that when the minimum wage rises those companies that are paying minimum wage jobs end up laying people off and they end up hiring less people.”

According to the Bureau of Labor Statistics, in 2012, half of all minimum wage earners were 25 years old or younger. In total, it calculated that roughly 3.6 million people earned wages at or below the federal minimum level. This represents 4.7 percent of all hourly workers. Representative Peter King (R-N.Y.) echoed concerns about lay offs, adding that a higher minimum wage is “an extra burden that you’re imposing on employers as they try to come out of the recession.” If there was a compromise that benefits small businesses, King said he could consider an increase.

However, King said the key to recovery and higher wages is not a federal program. Instead, “the ultimate answer is to allow the private sector expand and we’re not going to do that so long as we keep adding regulations on top of regulation and people like Senator Reid, you know, refuse to talk about lifting any of those regulations.”

The letter by the economists has a different stance from King and Salmon. “In recent years, there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

Actually, the economists counter, “a small stimulative effect on the economy as low-wage workers spend their additional earnings,” may occur after the minimum wage is raise. An ABC News/Washington Post poll in December found that increasing the minimum wage has broad-based support, with 66 percent being in favor of raising wages. Democrats were most likely to favor an increase (85 percent), followed by independents (65 percent). Half of all Republicans surveyed supported raising the federal minimum wage.

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