Time to Raise the Minimum Wage
By Nayyer Ali MD

The Great Recession of 2007-2009 has still left a mark on the US economy. While GDP has finally passed its 2007 peak, and the stock market has roared to record highs, there are still about 8 million fewer people working than should be. This vast army of unemployed people has kept pressure on wages muted, and most of the benefits of the recovery have gone to corporations, who now receive a record share of the economy in terms of corporate profits. The top 1% are doing great, and have never been wealthier.
Because unions have declined to almost non-existent in the American private sector, regular working people have very little ability to demand higher pay and benefits from their flush employers. This is even more true at the very bottom of the income scale, where millions who work in food service, retail, home care, and other low paying jobs get by on minimum wage. Their only hope for a raise is for government action.
Currently the minimum wage in America is 7.25 dollars per hour. A full time worker would make 15,000 dollars a year, barely enough to support a single person, and so little that it consigns families to poverty, even though the mom or dad is working full-time. The last time the minimum wage was raised was 2009, and inflation has eaten away at its value ever since. What is interesting to note is that the minimum wage is actually lower than it was in the 1960’s. Adjusted for inflation, the highest minimum wage in the US was in 1968 at the equivalent in today’s dollars of 10.75 per hour. And that was a much smaller and poorer economy than what we have today.
It is clearly time to substantially raise the minimum wage. President Obama and the Senate Democrats want to raise it to 10.10 per hour. Already, many states and even cities have higher minimum wages. In July, California’s minimum wage goes to 9 dollars/hour and will climb to 10 dollars in 2016. But what is really needed is federal action.
Boosting the minimum wage is perhaps the most effective way to fight poverty. It directly puts money into the hands of the poorest working families, and will make a major difference in their lives. An increase from 7.25 to 10.10 per hour means another 5000 dollars per year in income, and if both a husband and wife are working minimum wage jobs, they can provide at least a decent living for their family.
The Republicans object to any increase in the minimum wage. They have a long history of fighting actions that help the poor. In this case, they dress up their argument with a false contention that increasing minimum wage hurts the poor by reducing employment. Most minimum wage work is service sector work that requires a live person to do it, it cannot be turned over to a machine or outsourced to China. Hotels still need maids, McDonald’s still needs workers, and Wal-Mart still needs people to stack the shelves and man the cash registers. Economists have looked at neighboring states where one has raised the minimum wage and the other hasn’t, and have never found any significant impact on jobs.
To be sure, at some absurdly high value, a minimum wage could be counterproductive. If we set it at 30 dollars/hour it would dramatically hurt the economy. But it is hard to see how putting it back to level even less than 1968 is going to cause harm. The few thousand who may not be able to get a job are far outweighed by the massive benefit that millions of minimum wage workers will get from a raise. That raise will also boost their local economies, as they will spend all that money and raise demand for goods and services.
So who pays the cost of this increase in wages? We all do. A burger at McDonald’s may cost an extra 25 cents, and Wal-Mart would have to raise prices by 1% to cover their added wage bills, or corporations could just accept a little less profit and keep prices the same.
A minimum wage raise is a must. Given the rising inequality in the US, where almost all the benefit of economic growth in the last 30 years has gone to the very top of the income scale, it is only basic fairness to spread some of that back down to lowest rungs. In Australia, their economy functions just fine with a minimum wage of 16 dollars/hour. Given that we are much richer than we were in 1968, perhaps America too should push its minimum not just to 10.10, but even a couple dollars higher.

 

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Editor: Akhtar M. Faruqui
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