Set a spell, Congress. we've got a couple things to chat about...

This past week, much to everyone's surprise, Democrats in the House of Representatives managed to slip a proposal to increase the minimum wage into a bill funding the Departments of Labor and Health and Human Services.

Faced with the specter of having to vote against increasing the wage floor from its current embarrassing level of $5.15 to $7.25 by Jan. 1, 2009, Congressional Republicans snapped into action and pulled the bill.

This is what these brave souls do in election season when they don't want to have to go back to their districts and answer questions as to why it's ok to cut hundreds of billions in rich people's taxes but deny the working poor a boost.

Well, I say: "Not so fast, guys.  Let's chat about this for a few minutes."

Not let me get this straight.  Last month, you passed $70 billion worth of new tax cuts, mostly by extending earlier Bush cuts on dividends and capital gains.  When tax cuts target investment income, the benefits flow to the wealthy, and these cuts are exhibit A: they reduce millionaire's tax payments by $43,000, and those of middle-income families by $20.  Sorry, that's not a typo.  It's what you get when you put the YOYOs in charge of fiscal policy.

Wait a second, where you going?  I'm not done.  Set a spell...

After you finished that master stroke, you came alarmingly close to repealing the estate tax, a gift to the Paris Hilton's of the world that would have cost $1 trillion over 10 years.  A few stalwarts blocked you, but you're sure to be getting back to this one first chance you get.

Other than that, let's see...you made a lot of noise about gay marriage and flag burning, and you guys in the House just passed the Iraq War Resolution supporting the administration on Iraq and rejecting the setting of a date for troop withdrawal.

Oh, and you raised your own pay by $3,300.  In fact, you've raised your own salaries by about $35,000 since the last minimum wage increase.

But when it comes to raising the minimum wage, you pull the bill.

Let's review a few facts.  The Federal minimum wage has been stuck at $5.15 since September 1, 1997.  Come this December, you will tie the longest spell on record for ignoring the labor market's wage floor (i.e., the Reagan years, from 1981 to 1990, when Bush I signed an increase).  And since it is not adjusted for inflation, its buying power has eroded by 25% since then.

That's why the current minimum wage, in real terms, is at its lowest value since 1955.  Compared to the average wage, it's at 31%, the lowest level on record going back to 1947, meaning those stuck at or near the minimum wage are falling further behind the rest of us.

As always, your rationale for not raising the minimum is that it would hurt low-wage workers, whose employers would have to fire them when the wage mandate priced them out of the labor market (one can't help but note that this concern doesn't come up when you mandate your own pay hikes).

That would be a plausible argument, were it not for the fact that tons of careful research has disproved it.  The federal minimum wage has been raised 19 times by Congress since its introduction in 1938.  Eighteen states, covering about half of the national workforce, have minimum wages above that of the Federal level.  And over 100 cities have living wages--a higher minimum that applies to workers on city contracts or at firms with local government subsidies.  

In other words, more than any economic policy, we've had hundreds of "pseudo-experiments"--rare in economics--that allow us to test the impact of wage mandates on various outcomes.  These experiments allow us to compare before and after, or, even better, compare nearby places that face similar economic conditions but have different minimum wage laws.

The question that has received the most scrutiny is whether increases in the minimum wage lead employers to lay workers off.  You probably don't want to hear the results from me, but here's how Nobel laureate in economics, Robert Solow, put it: "The main thing about this research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small."

A great example comes from the last Federal minimum wage increase, back in 1996-97.  The usual suspects predicted massive job losses among those affected by the increase from $4.25 to the current level of $5.15.  Instead, low-wage workers experienced the strongest job market in 30 years.  Poverty fell to historic lows, particularly for the most disadvantaged workers, such as less-skilled minorities and single-mothers.  

On the other hand, there no such body of evidence supporting your claims that cutting taxes for the rich actually accomplishes anything beyond distributing wealth up to the scale.  Did I mention that profits as a share of national income are at a 39-year high?

Now, don't get me wrong.  I'm not implying for a nanosecond that an increase in the minimum wage would offset the damage you guys have done over the past few years.  In that scheme of things, raising the pay of about seven million low-wage workers by less than two bucks is a token gesture which you will hopefully be forced to make so you can show your faces again in public.

But it would make an important difference to those workers, so you should do it.  The fact that I even have to argue with you about it is what's so painful.

Tags: All Together Now, Business, congressional raise, democracy, democratic values, Economic Policy Institute, Economy, Inequality, Jared Bernstein, minimum wage, Poverty, progressive, Social Security, State of Working, Taxes, Yoyo Economics (all tags)

Comments

2 Comments

Re: Set a spell, Congress. we've got a couple thin

Congress should be voting to improve the standard of living for their constituents, not for themselves.

by breakingranks 2006-06-18 10:10AM | 0 recs
Re: Set a spell, Congress. we've got a couple thin

Jared Bernstein,

You are going about it all wrong.  You can never shame conservatives, Republican or Democrat.  What liberals think is shameful, conservatives pride themselves on.  Got to keep the underclass down don't you know?    They are doing a simply smashing job of it, from Jimmy Carter through all of his successors.

Maybe if you explained to the conservatives that a hefty increase in the minimum wage would lead to a hefty increase in contributions to the wealthier segment of the population through the ultra-regressive Social Security non-tax, they would leap at the chance.

by terryhallinan 2006-06-18 11:00AM | 0 recs

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