The minimum wage
Shapiro, Isaac
The case for an increase in the federal minimum wage has long been persuasive. The wage floor of $3.35 an hour has not been raised for eight years; adjusted for inflation, its purchasing...
...Two arguments—one old and one new—have been raised in opposition to the minimum-wage increase...
...This does not mean, however, that the minimum wage has little connection to poverty...
...Although minimum-wage increases probably would cause some employment loss, it is likely to be far smaller than the figures cited by opponents...
...The wage floor of $3.35 an hour has not been raised for eight years...
...Benefits of a Minimum Wage The minimum-wage standard assists workers who generally lack political clout, are not unionized, and are in little position to bargain for themselves...
...Moreover, now is a particularly auspicious time to raise the minimum wage...
...20 percent are aged twenty to twenty-four...
...Currently the credit varies only by the levels of earned income in a family, and not by family size...
...One congressional proposal would increase the credit by a maximum of $125 for a family with one child, $625 for a family with two children, and by even larger amounts for families with three or more children...
...Still, further expansion of the EITC is not a substitute but is a complement to a minimum wage increase...
...But without a minimum-wage increase, it would leave families well short of the poverty line...
...Last, even though the EITC extends some relief to workers above the poverty line, the relief currently extended would be considerably less than the amount of additional income that potentially would be earned by near-poor and moderate income workers if the minimum wage were returned to its historical level...
...The current debate concerning work incentives and the poor has focused largely on whether significant disincentives arise from welfare assistance, while often neglecting the disincentives when working is not sufficiently rewarded...
...Since income needs increase as families become larger, adjusting the EITC by family size would diminish the income problems of large working-poor families...
...Reprinted with permission of Universal Press Syndicate...
...A higher minimum wage might lead some individuals— including youths, young men, and mothers on public assistance—to increase their work activity...
...A proposal that has gathered some support in Congress would expand the earned income tax credit (EITC) as a substitute for a minimum wage increase...
...For many of these workers, the serious deterioration of the minimum wage has compounded their income problems...
...Nonetheless, many of the jobs loss projections now cited use estimates based on the high range of the pre-1980 studies reviewed by the commission, without noting that this range is substantially higher than that of the commission staff's estimates...
...Now it is true that most minimum-wage workers are not poor...
...The best of these pre-1980 studies was conducted by economists of the Minimum Wage Study Commission, established by Congress in 1977...
...They found that a 10 percent increase in the minimum wage is associated with a 1 percent decrease in teenage employment and a decrease of one-quarter of 1 percent in the employment of young adults (twenty to twenty-four years old...
...While a primary barrier to more work effort among poor individuals is the unavailability of employment, it is also important to consider the impact on work of the wages and benefits provided by available jobs...
...In these areas, the economic effects of restoring the federal minimum wage have been partially preempted, thus dampening any possible negative employment effects due to changes in federal law...
...The proposal is near the upper bound of proposed EITC expansions in its scope and cost — $2 billion annually—and is generally an excellent approach...
...It would require more than tripling the EITC phase-in rate (from 14 percent to at least 45 percent) and would likely add billions in new costs...
...All rights reserved...
...Partial Job Losses The chief argument raised against a minimum wage increase is that it would decrease the demand for labor...
...Some of these families are struggling to get by even though they are two-earner families, because one or both workers may be employed at or near the minimum wage...
...18 • DISSENT Most workers earning the minimum wage or less do not fit the stereotype of teenagers in their first job...
...As a result of increased productivity, the actual cost of labor may not rise as much as the increase in the minimum wage...
...It now provides a credit of 14 percent on the first $6,250 of annual earnings...
...adjusted for inflation, its purchasing power has fallen to its lowest level since 1955...
...An increase in the wage standard would help lessen their poverty...
...In 1987 some 6.3 million hourly and salaried workers earned the minimum wage or less...
...The new argument is that in lieu of a minimum-wage increase, adjustments in the tax code could target assistance to low-wage workers without job losses...
...In fact, the support provided by government programs has diminished in recent years and, for the most part, leaves recipients well below the poverty line...
...only 30 percent are teenagers...
...Second, a shortage in the supply of teenage workers may be emerging...
...Half are twenty-five years or older...
...First, since the current minimum wage is substantially lower than in the past, relatively fewer workers now work at or near the minimum wage...
...AUTH © 1988 PHILADELPHIA INQUIRER...
...With a low minimum wage, the benefits from working may be less, or only minimally more, than the benefits from government assistance...
...This is because the rewards from working are small, not because government assistance is especially generous...
...Among workers who earned $3.36 to $4.49 an hour in 1987, more than half-53 percent—were twenty-five years or older and only 24 percent were teenagers...
...Between 1977 and 1987 the maximum value of Aid to Families with Dependent Children benefits for a three person family with no other income dropped by 24 percent in the typical state...
...An additional 10.8 million such workers earned between $3.35 and $4.50 an hour...
...In 1988, a person working full-time year-round at the minimum wage earns $2,500 less than the estimated poverty line for a family of three...
...An additional 6.6 million who were poor worked on less than a full-time year-round basis, up 28 percent since 1979...
...Virtually all of their estimates are based on outdated studies of pre-1980 labor markets...
...Finally, eleven states and the District of Columbia have boosted their minimum-wage levels above the federal level, including California, which has raised its minimum wage to $4.25 an hour...
...An increase in the minimum wage is thus likely to have a smaller effect on the economy than in the past...
...They are based on labor market data through 1979 and do not reflect the important differences between today's low-wage labor market and that of the 1960s and 1970s...
...Fortunately, a new study—conducted by Alison Wellington of the University of Michigan under the supervision of one of the commission's senior economists—has replicated the work of the commission staff, but with labor market data through 1986...
...On the contrary, more than half—about 60 percent—of all workers who are paid by the hour and are in poverty have earnings at or near the minimum wage...
...They reviewed all previous studies and conducted an updated study of their own...
...Given the likely consequences of the minimum wage on workers, an increase is overdue...
...The minimum wage now equals only 36 percent of the average private, nonsupervisory wage, compared to the historical goal of 50 percent that was usually achieved in the 1960s and nearly attained in parts of the 1970s...
...An EITC increase that would have as much impact on a three-person family as a return of the minimum wage to the three-person poverty line would need to be extremely large—much larger than any currently proposed...
...The Fall of the Minimum Wage The period since January 1981 represents the longest spell without an increase in the wage floor since the federal minimum wage was established in 1938...
...20 • DISSENT...
...In sharp contrast, during the 1960s and 1970s full-time year-round minimum wage earnings averaged slightly above the three-person poverty threshold...
...The minimum-wage erosion is of particular importance because of the increase in the number of Comments and Opinions, working poor in the 1980s...
...Indeed, the EITC is a particularly effective government program to aid low-wage working families...
...Moreover, even the job loss estimates of the commission staff are now out of date...
...Several factors support estimates that a minimumwage boost would cause only modest job losses...
...The old argument is, that by artificially raising the cost of labor, a minimum-wage increase would price many workers out of jobs...
...The Earned-Income Tax Credit The tradeoffs involved in raising the minimum wage have led some to advance substitute proposals for WINTER • 1989 • 19 Comments and Opinions assisting poor workers...
...At current minimum-wage levels, a two-parent family of four with a full-time minimum-wage worker would still fall $3,700 below the poverty line...
...Higher wages may enhance job stability and commitment among workers, not minor factors in low-wage labor markets often characterized by quick job turnover Employers, in turn, may respond to a minimum wage hike by reorganizing production processes to make better use of existing employees...
...The EITC helps offset the federal social security taxes paid by low-income workers with children...
...Freezing the minimum wage at $3.35 an hour for an indefinite period of time, while prices continue to rise, would suggest that this society is willing to accept the standard's gradual erosion to the point where it may cease to have meaning...
...In 1987 nearly 1.9 million people worked full-time year-round yet remained in poverty, 43 percent more than in 1979...
...The case for an increase in the federal minimum wage has long been persuasive...
...The number of sixteen to nineteen year olds rose in all but one of the twentyfive years preceding 1978, but has fallen sharply in the 1980s...
...The disemployment estimates cited above, as well as those noted by some opponents of a minimum wage increase, are based primarily on years when the youth population was rising and thus may be overstated...
...An estimated seven out of ten workers paid by the hour and earning the minimum wage or less live in households with incomes more than 150 percent of the poverty line...
...It finds that a minimum-wage increase of 10 percent is associated with a 0.56 percent decrease in employment opportunities and that there is no effect on the employment of young adults...
...As the wage floor has deteriorated, the number of people who work but live in poverty has risen, and there has been growing evidence of stagnating or declining standards of living among many of the near poor and the middle class...
...Such a proposal would be even more costly to the federal government if it also extended help, as a minimum wage increase would, to childless couples and workers living alone...
...The economists did not find compelling evidence of any job loss for adults twenty-five and over...
...Full-time year-round minimum wage earnings now equal only 74 percent of the estimated three-person poverty threshold...
...Young workers in particular, it is argued, would have fewer opportunities because they are the least productive employees...
...This action to help low-wage workers should be among the priorities of the new Congress and administration...
...Prices rose 37 percent between January 1981 and August 1988, and the value of the minimum wage fell to a historically low level...
...Let us see if these arguments are valid...
...The maximum credit of $875 is phased out for annual earnings above $9,840...
...Moreover, the needs of minimum wage workers who live in nonpoor households should not be dismissed...
Vol. 36 • January 1989 • No. 1
