Reports from the Economic Front

a blog by Marty Hart-Landsberg

The Minimum Wage Goes Up

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The national minimum wage rose by 70 cents to $7.25 an hour on July 24.  Set by Congress, the minimum wage was unchanged from 1997 to 2006, which meant that workers earning the national minimum suffered real and substantial declines in their standard of living.  Finally in 2006 Congress agreed to raise the wage by increments in each of the following three years; this is the final increase.

This increase, while welcome, is still limited.  For comparison purposes, in real terms the new minimum wage is still some 25% below what it was in the late 1960s.  Yes, that is right—in terms of purchasing power, the minimum wage now buys some 25% less than it did some 40 years ago.

The decline in the real value of the minimum wage means that full time workers earning the current minimum wage will find themselves living in poverty.  As the Center for Economic and Policy Research explains:

While significant, this month’s increase in the minimum wage will still leave a full-time worker receiving it with income far below what they need to make ends meet. Of course, what it takes to “make ends meet” is subject to much debate among experts, but regular Americans have a more definite opinion. Surveys conducted by Gallup over the last several decades have asked people to name the minimum amount of money that a family of four would need to “get along in your local community.” For much of the 1950s and 1960s, the typical response to this question was around $32,000 in today’s dollars. In 1969, a woman working in a minimum-wage job and supporting two children earned an amount not far below this basic “get-along” standard (adjusted for family size).

Today, such a worker would be nowhere near it. In 2007, the “get-along” amount was $45,000. Even after this week’s increase, a minimum wage worker will still earn less than $15,000 a year. Moreover, most will have no health insurance, no retirement plan, no paid vacation, or even sick days.

This increase, despite its limitations, couldn’t be more timely.  It means money in the hands of people who will spend it, thereby helping to stimulate our economy.  The Economic Policy Institute estimates that the 70-cent increase will boost consumer spending by $5.5 billion over the next year.

Sadly some economists dismiss the minimum wage as irrelevant, arguing that it only helps middle class teenagers working part-time for spending money.  In reality, 76% of all workers earning the national minimum wage are over 20 years of age.  And even teenagers need the money to help themselves and their families in this period.

Moreover, the gains extend significantly beyond the 2.2 million workers currently earning the minimum wage to include a large percentage of the almost 8 million workers who earn wages just slightly above it.  This happens because most companies have found it beneficial to maintain a wage scale and an increase in the minimum wage forces them to increase the wages of those who previously earned above the past minimum.

Seems all to the good right?  Well, not according to the logic of some.  According to these analysts, this increase is dreadful.  The reason: raising wages of those at the bottom will push up labor costs, hurt profits, and prolong the recession.  Interesting isn’t it—when the economy was going up, most of these people defended policies that produced a real decline in worker earnings.  They are doing the same now, even though the economy is going down.

Capitalism is often defended as the best means to a desirable end.  But in reality it has become the end itself.  We are now told what compromises we must make (in wages, working conditions, social services) in order to sustain profits.  Seems like it is time for us to pursue the creation of a system that can help us get to where we want to go.

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