The Minimum Wage Matters

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On Thursday, the Mid-Atlantic office of the Bureau of Labor Statistics released its latest estimate of the number of workers in Pennsylvania earning at or below the current federal minimum wage of $7.25 an hour.

Among those paid by the hour, 91,000 earned exactly the prevailing Federal minimum wage of $7.25 per hour, while 115,000 earned less. Sheila Watkins, the Bureau’s regional commissioner, noted that workers earning the Federal minimum wage or less made up 6.3 percent of all hourly-paid workers in the Commonwealth, up from 4.7 percent in 2009.

The New York Times had an excellent editorial on Saturday calling for an increase in the minimum wage:

Opponents argue that raising the minimum wage would inevitably lead to higher unemployment, prompting companies to cut jobs and decamp to cheaper labor markets. It is particularly bad, the argument goes, to raise it in a weak labor market. Yet with unemployment likely to remain painfully high for years to come, this argument amounts to a promise that the working poor will remain poor for a long time.

What’s more, we know now that the argument is grossly overstated. Over the past 15 years, states and cities around the country have rushed ahead of the federal government to impose higher minimum wages. Economists analyzing the impact of the increases on jobs have concluded that moderate increases have no discernible impact on joblessness. Employers did not rush off to cheaper labor markets in the suburbs or across state lines for a simple reason: that costs money too.

The most recent research, by John Schmitt and David Rosnick at the Center for Economic and Policy Research, found that San Francisco’s minimum wage jump to $8.50 in 2004 — well above the state minimum of $6.75 — improved low-wage workers’ incomes and did not kill jobs. An even bigger jump in Santa Fe, N.M., the same year — from $5.15 to $8.50 — had a similar effect.

Despite evidence to the contrary, businesses and Republicans may keep pushing against the minimum wage — using the jobs crisis now to clinch their argument. They should be disregarded, because their argument is wrong and the United States is too rich to tolerate such an underclass.

You can read the Schmitt and Rosnick piece here.

It is important to remember that there was a time in U.S. history when policymakers made sure that as society got wealthier, the minimum wage increased to reflect that greater wealth.  The following figure plots the annual growth in productivity along with the growth in the inflation-adjusted minimum wage. As the economy prospered, minimum wage workers shared in that prosperity.

To drive home how important this policy was to the well being of low-wage workers, the Economic Policy Institute plotted actual poverty rates against the simulated poverty.  The key point is that as the minimum wage kept pace with productivity growth, the U.S. economy experienced rapid declines in poverty (the blue and red lines move down together).  Of course, as you can see from the graph below, actual poverty (the red line) — unlike simulated poverty (the blue line) — didn't go to zero. 

So why didn't poverty keep falling?  You can see an important reason why in the next figure which plots productivity growth in the U.S. economy since 1979 and growth in the minimum wage.  In the period since 1979, policymakers chose not to raise the minimum wage to keep pace with productivity growth.  In fact, not only has the minimum wage failed to keep pace with productivity growth, it has even largely failed to keep pace with the growth in inflation such that even after a recent increase, minimum-wage workers earn less today than minimum-wage workers did in 1979.


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