Reuters: Minimum wage set to rise, but views vary

By Joanne Morrison - Analysis
Reuters, 7/23/08

WASHINGTON (Reuters) - The national minimum wage is set to increase by 70 cents on Thursday to $6.55 an hour, the second of three increases to take place after the wages earned by the nation's poorest and least educated failed to rise for ten years.

In an economy where the richest 20 percent in the country earned more than half of all income earned, experts say the increase is more than due.

"It's about as perfect an economic stimulus as you can get. Minimum wage raises go directly to those who absolutely need to go out and spend it on food and healthcare," said Holly Sklar, director of Business for Shared Prosperity, a network of business owners supporting minimum wages.

U.S. wages have not kept pace with inflation. Taking into account higher prices paid for food, healthcare, housing and a range of other necessary expenditures, U.S. wages are equal to those paid 40 years ago.

"It really comes down to what sort of economy are we running here," said John Arensmeyer, founder and Chief Executive Officer of the Small Business Majority, a national organization of business entrepreneurs.

"It's a moral issue, but it's much more than that, it's an economic issue. I don't think we should be trying to compete with third world countries on slave wages," said Arensmeyer.

A year ago, the first of three increases was mandated. Next summer the wage will rise to $7.25, but these increases come as more than half of U.S. state governments have raised minimum wages on their own above the federal standard, with a handful tying increases to annual inflation, an important criterion as higher energy, food and healthcare costs have cut into earnings.


But mandating a federal increase in minimum wage has its critics. Many argue that this will hurt small business, reduce jobs, and add more of a tax on this economy that is already limping through the worst housing slump since the Great Depression.

"In terms of timing, this couldn't come at a worse time," said Richard Vedder, Ohio University Professor and American Enterprise Institute Scholar, a conservative think tank here.

Already the economy has shed 438,000 jobs this year and will likely lose more as businesses cut back amid a credit crisis brought on by the worst housing collapse since the Great Depression.

Vedder warns that weakest segment of the workforce, teenagers, unskilled workers and minorities stand to suffer the most from the hike.

"When the minimum wage goes up, some of these workers tend to be disproportionately minorities and they are younger people who naturally don't have the skills. These are the people that are most impacted," he said.

Not only will the increase reduce jobs but employers will "game the system" by cutting back on benefits such as healthcare. "You could see a cut in some of these alternative benefits," he warns.

Other critics agree and caution that the imposed increases do nothing to reduce poverty.

"These decisions end up hurting the very employees that wage increases are meant to help," the National Restaurant Association said in a policy statement.


Experts on the other side of the fence say there is no evidence that minimum wage increases lead to job losses and they emphasize that more wages earned translates into more money spent, helping local economies and small businesses.

"We already have a lot of variation (in minimum wages) and there is no evidence of job losses," said Arindrajit Dube, labor economist with UC Berkeley Institute for Research on Labor and Employment.

He and others note that the sporadic increases are less effective and that regular increases, indexed to rates of inflation, would be a better approach.

"We went from 1997 to 2007, 10 years of complete stagnation of the minimum wage and a decline in the minimum wage in real terms and that just seems not a good way of doing policy," Dube said.

AFL-CIO President John Sweeney, the nation's largest labor federation, applauded the latest increase but called it a modest step.

"To truly aid working families, we need to build an economy that works for all, not just the top 10 percent," he said. "Rising inflation -- especially in gas prices -- continues to eat away at the value of the minimum wage and all of wages."

© Thomson Reuters 2008.

Share +