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Dean Baker
Published: Tuesday 24 July 2012
“A higher minimum wage is an important step toward reversing this rigging. It should not be too much to expect that workers today should get at least as much as they did 45 years ago.”

Raising the Minimum Wage is Cheap and Easy

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There are some policies that are pretty much no-brainers. We all agree that the Food and Drug Administration should keep dangerous drugs off the market. We all agree that the government should provide police and fire protection. And, we pretty much all agree that workers should be able to count on at least some minimal pay for a day’s work.

The minimum wage is non-controversial. The vast majority of people across the political spectrum support the minimum wage. In fact, one of the big accomplishments of the Gingrich Congress in 1996 was a 22 percent increase in the minimum wage. The only real issue is how high it should be. There are good reasons for believing that the minimum wage should be considerably higher than it is today.

At the current rate of $7.25 an hour, a full-time year-round worker would have gross pay of less than $15,000 a year. This is less than half of what the average Fortune 500 CEO makes in a day. It would be hard enough for a single person to survive on this income, imagine trying to support a child or even two on this money. And, close to 40 percent of the workers who would be benefited by a minimum wage increase have kids.

The counter-argument against raising the minimum wage is that it would actually hurt the people we are trying to help by reducing employment. There is little basis for this claim. The impact of the minimum wage on employment is one of the most heavily researched topics in economics.

Most recent research finds that it has no impact on employment. Even the research that finds job loss shows that the effect is small, suggesting that a 20 percent increase in the minimum wage may reduce employment of young people by around 2 to 3 percent.

While it’s not desirable to see anyone lose their job, it is important to remember the character of these jobs. They tend to be high turnover jobs that people leave after working relatively short periods of time. Job loss in this context is not likely to mean people being fired, rather it means that firms might be somewhat slower to hire. This would cause a typical low-wage worker to spend somewhat longer between jobs.

The dollars and cents might mean, for example, that a typical low wage worker ends up working 2 percent fewer hours in a year, but they take home 20 percent more pay for each hour that they work. This nets out to an increase in pay of 18 percent, a deal that most workers would likely consider pretty good.

In terms of whether we can afford a higher minimum wage, it is worth remembering that the minimum wage in 1968 would be almost $9.00 an hour in today’s dollars. In spite of the high minimum wage in the late 1960s, the job creators of that period pushed the unemployment rate down to 3.0 percent.  

And, the country has not gotten poorer in the last four and a half decades. We have policy wonks running around Washington who seem to think that cell phones, computers, the Internet, and all other innovations of the past four decades that we now take for granted have reduced our standard of living.

This is of course nonsense. Productivity has increased by more than 120 percent since the late 1960s. If the minimum wage had kept step with productivity growth and inflation it would be over $20 an hour today.

The real problem in our economy today is not that it is not a lack of productivity. The problem is that the gains from productivity growth have not been broadly shared. The wealthy have used their power to rig the deck so that most of the benefits of growth have to gone those at the top. They have used their control of trade policy, the Federal Reserve Board, and more recently the Wall Street bailout, to ensure that those at the top have gained at the expense of everyone else.

A higher minimum wage is an important step toward reversing this rigging. It should not be too much to expect that workers today should get at least as much as they did 45 years ago, and perhaps some dividend to allow them to share in the benefits of economic growth over this period. A minimum wage of $10 an hour would be a big step in the right direction.



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ABOUT Dean Baker
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is the author of several books, including Plunder & Blunder: The Rise and Fall of the Bubble Economy, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer and The United States Since 1980. He was the editor of Getting Prices Right: The Debate Over the Consumer Price Index, which was a winner of a Choice Book Award as one of the outstanding academic books of the year. He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in economics from the University of Michigan.

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