The Least We Could Pay

AP Photo/John Minchillo

In his campaign to drum up public support for a post-recess budget deal with Congress, President Barack Obama has repeated a call he first made in his 2013 State of the Union speech: an increase in the federal minimum wage. This past January, he called for a $9 minimum wage, up from the $7.25 rate that has remained unchanged the past four years. This week, at an Amazon packaging facility in Chattanooga, Tennessee, he said: “[B]ecause no one who works full-time in America should have to live in poverty, I will keep making the case that we need to raise a minimum wage that in real terms is lower than it was when Ronald Reagan took office. That means more money in consumers’ pockets, and more business for companies like Amazon.”

A $9 federal minimum wage is higher than any current state’s minimum wage except Washington’s. When Wisconsin Congressman Paul Ryan and other Republicans dismissed the President’s call to raise the minimum wage and index it to inflation, the legislators said it was because they believed raising the minimum wage was inflationary.  But economists are divided about what an indexed minimum wage would do to the economy. It is easy to believe that a higher minimum wage would raise prices for the goods produced by minimum-wage workers, like a McDonald’s hamburger, but the relationship isn’t one-to-one. The price of a Quarter Pounder will only rise if consumers are willing to pay more for it, and if they’re unwilling to pay much more than the current price, then those higher wages for the clerks at the register could translate into slightly lower corporate profits. That leads to one of the potential benefits of a higher minimum wage: reduced income inequality.

Another benefit is that raising the minimum wage will help close the gender pay gap. The National Women’s Law Center analyzed states with the lowest and highest pay gaps between men and women, and found that seven of the ten states with the smallest wage gaps had higher minimum wages than the federal floor of $7.25. Four of them had minimum wages of $8 or higher, and, on average, these states had a wage gap that was 3 cents narrower than the national average. (Nationwide, women still make 77 cents on each dollar a man earns.) That’s because women are concentrated in low-wage jobs. Joan Entmacher, the president of the National Women’s Law Center, said the reason was two-fold: women make less money than men on the same jobs, and women are also concentrated in industries we think of as “women’s work,” —childcare providers and housecleaners—which are lower paid and are undervalued precisely because they’re tasks preformed by women. A higher minimum wage, then, would disproportionately help women.

At least in theory. Economists say it’s possible that a higher federal minimum wage could lead to fewer jobs overall: studies across state lines with different minimum wages have varied findings on that score. It’s also true, however, that the minimum wage in the 70s, pre-Reagan, was about $10 in today’s dollars in real terms.

One thing that’s not in dispute is that current minimum-wage workers still live in poverty. A full-time worker at a fast-food restaurant like Taco Bell earning the current federal minimum wage could be earning, at most, about $13,195 a year. That’s if she has a 35-hour workweek and works 52 weeks a year.  That’s a big if, however. Most fast food and other minimum-wage workers have very little control over their schedules, and many are kept in part-time status. Accounting for mandated lunch and other breaks, 35 hours is a full-time week, and many managers cut hours in some weeks to compensate for overtime in other weeks so that they can keep labor costs low. It’s common for workers to want more hours than they get.

In the spring, lawmakers in the House and Senate introduced bills to increase the minimum wage up to more than $10 in a few years, which have gone nowhere. Since the president spoke, others—advocates, Senator Elizabeth Warren—have called for even higher minimum wages in the $15 to $20 range. These come closer to arguments about a Living Wage, which is what fast-food workers are striking for in cities around the country, and what the Washington, D.C., city council demanded of WalMart before they would approve the low-wage always retailer’s move into the district.

Dylan Matthews at The Washington Post has argued that this is a terrible idea, and that it is less cost-effective than just giving poor people money. It’s a fair point. Food stamps, which are the most solid way we give poor people money, help keep families out of poverty and are good for the rest of us: Most economists find about $1.70 goes back into the economy for every dollar spent on food stamps. Programs like the earned-income tax credit, which give low-income parents more money back in their tax returns in April than they’ve actually paid in taxes, were instituted to help keep the poor in the labor market and making work pay more than it does.

Yet giving poor people money is not something this country does any longer: Food stamps are likely to be cut in the next farm bill. Paul Ryan’s proposed House budget would slash the earned-income tax credit—which was a conservative idea in the first place. After 1996, when welfare was turned into a block grant to states, the aid it provided to families was decimated. Families are now lucky to get a few hundred dollars a month, for which they have to work a full-time job and, in some states, prove that they are applying to at least 20 non-welfare jobs per week. The end result of all of these attacks is that food stamps help fewer families than are usually eligible for them, the earned-income tax credit is now seen as a giveaway to the “47 percent,” and only the most desperate families rely on welfare.

Moreover, these programs, helpful as they are to poor families, have helped subsidize low-wage work. Changes made to the social-safety net have helped move more poor adults—largely single mothers—into the workforce, and reduced poverty while the economy was good. A side effect, however, is that they’ve also helped create a system in which the country’s biggest employer, WalMart, can pay workers poverty wages and count on the rest of us to step in to keep those families from starving.

Maybe that’s the way America should do things. But those jobs haven’t proven to be the ladder into a middle-class life that advocates of the 1996 welfare reform hoped they would be. Instead, many workers have been stuck in low-wage jobs or have to take on debt for a college degree to get out of them. In fact, poverty has only increased in the past 40 years, to the point where now, 4 in 5 adults face near-poverty, joblessness, or rely on government assistance at some point in their lives. Every race, ethnicity, and community in the country feels poverty. Raising the minimum wage by a few dollars seems a small thing in comparison.

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