Monday, July 21, 2008

Is This Raise Too Little Too Late?

This Thursday the U.S. minimum wage increases from $5.85 to $6.55 per hour. It is part of three phases of increases. The last increase will take place in 2009, when it tops out at $7.25.

I have to confess that it was a long time before I understood the minimum wage to be a controversial subject. As a matter of fact, I considered the minimum wage to be, well, matter of fact! It was a few years ago that I found out that there are sectors of the populace who are either against significant increases in the minimum wage, and some who are against the idea of a minimum wage altogether.

At the risk of oversimplifying the argument, the basic objection can be summed up in four words: the sky will fall! Increases in the minimum wage are viewed as yet another step towards the end of western civilization. Small businesses will suffer. Adult wage earners will suffer. Families will suffer. And then we all will suffer some type of economic nuclear winter and our continent will fall of the face of the Earth.

Of course I’m kidding. But given some of the fears that some people express, you wonder how the country has survived. Prior to the increase in 2007 from $5.15 to $5.85, the last raise for the low income wage earner was in 1998!

Minimum wage workers hardly constitute an army poised to invade the ranks of the middle class. At $5.85 a full time worker made $10,712 annually and still fell almost 40% below the poverty line even when factoring in the earned income tax credit! By 2009, the increase to $7.25 will bring a family of two above the poverty line, but a family of three would still fall 18% below the poverty line. This is particularly important when you begin to count how many people are classified as poor in America.

The official count of those who fell below the poverty line in 2006 was 12%. But recent research using recommendations from the National Academy of Sciences places the number significantly higher at almost 18%. That’s 16 million more people than in the ‘official’ count (you can check out the recommended process at http://www.bls.gov/ore/abstract/ec/ec080030.htm).

That’s important because a major argument against the rise in the minimum wage is that it would make it increasingly more difficult for youth who need these low wage jobs. In reality, most minimum wage workers are adults who support families. Or at least try to! Adults make up the largest share of workers benefitting from this minimum wage increase: 79% of workers whose wages would be raised by the increase to $7.25 by 2009 are adults (age 20 or older). And 53% of those workers work full time.

Last month’s reported national unemployment rate of 5.5 % (which doesn’t count those who are unemployed and stopped looking), doesn’t include a devastating underemployed rate – those working part time who would rather work full time – which is at 9.9%.
I guess the point is minimum wage, while an important and necessary first step isn’t the answer. We need to be talking about a living wage and while also providing some level of relief for those employers who provide it.

Starting last year Congress corrected the longest period of federal wage inaction in nearly 40 years. If we can’t figure out how to do more it can be argued that it has been too little too late.
Obviously we must fix a broken economy, but that fix must not exclude the American worker and bring wages line with the needs of the American family.

For more information, visit the Economic Policy Institute’s website: http://www.epi.org/content.cfm/issueguides_minwage_minwagefacts.

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