Businessweek Archives

Commentary: A Perfect Time To Raise The Minimum Wage


News: Analysis & Commentary

Commentary: A Perfect Time to Raise the Minimum Wage

Opponents of a minimum-wage hike are a beleaguered bunch these days. Less than two years after the last increase took effect, Democrats are pushing for another raise. Groups such as the National Restaurant Assn. and the American Enterprise Institute, a conservative think tank, say it's a bad idea--just as they have every time it has been suggested. But with unemployment at near-record lows and nary a whiff of inflation in the air, even the most ardent foes have a tough time coming up with counterarguments. And for good reason--there are none.

GOP congressional leaders concede that they won't put up much of a fight, since they couldn't win anyway. And the minimum wage helps in their effort to soften their post-impeachment image. "Democrats may not get the entire $1-an-hour increase they want, but something will pass," concedes National Restaurant Assn. chief lobbyist Lee Culpepper, who's leading a coalition of 25 business groups opposed to an increase.

So, Speaker Dennis J. Hastert (R-Ill.) has decided to get the minimum-wage debate over with early, perhaps this summer, aides say. With their six-vote House majority in jeopardy, the Republicans don't want the minimum wage to galvanize extra support for Democratic candidates. Also, a big tussle would split the GOP, since moderates such as Jack Quinn (R-N.Y.) are leading the effort to raise the minimum.

Politics aside, it's an ideal time to help out the lowest-paid workers. True, Congress jacked up the minimum by a fat 20% over two years starting in 1996, to the current $5.15 an hour. But, adjusted for inflation, that's still 17% lower than the minimum wage when President Reagan took office in 1981. And it's 27% less than the peak hit in 1968. The conclusion: There's plenty of room for another hike without running into the kind of economic problems critics cite.

The past two years demonstrate just how easily the roaring U.S. economy has shrugged off the problems that were feared after the last increases. Since 1996, unemployment has plunged by more than a percentage point, to 4.2%. And the share of the population holding a job has jumped to a record 64%. New studies have questioned the conventional economic wisdom that a minimum wage destroys jobs. But even if the 1996 hike did cut some jobs, new hiring by other firms more than offsets the losses.

For low-wage workers affected directly by the minimum, the story is just as good. Over the past two years, jobless rates for chronically low-wage groups, including high school dropouts, have fallen respectively by one and two percentage points, reports the Economic Policy Institute, a Washington think tank. The same is true for populations with large proportions of low-wage workers, such as teenagers, blacks, and Hispanics. "The labor-market conditions facing low-wage workers have continued to improve, contrary to the predictions of those who opposed the last increase," says EPI economist Jared Bernstein.LONG CLIMB BACK. Lifting the wage floor will help the poorest families catch up after two decades of losing ground. Hourly wages for the bottom 20% of workers have outpaced inflation by a healthy 2% a year in the past two years. But the average family income of this group is just getting back to the $12,250 achieved in 1989, adjusted for inflation to 1997 dollars. It will take several more years of a supercharged economy to return them to the 1979 peak--$13,009 in 1997 dollars. A higher minimum would speed the process.

A valid criticism of the minimum wage is that it benefits some well-off families along with poor ones. For example, 12% of the 1996 increase went to workers--probably teens--living in families earning an average of $131,000 a year, according to EPI calculations. Still, most of the benefit goes to those who need it, namely low-wage workers in poor families. Congress should act now to help them--while the economy is strong.By Aaron BernsteinReturn to top


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus