Distributed by Minuteman Media, 12/31/08

The federal minimum wage was not enacted during good times, but during the extraordinarily hard times of the Great Depression. When it was established in 1938, the unemployment rate was still 19 percent.

President Franklin Roosevelt called the minimum wage “an essential part of economic recovery.” It would put a floor under workers wages, alleviate the hardship of inadequate wages, and stimulate the economy and job creation by increasing consumer purchasing power. The federal minimum wage was also meant to promote economic development and stop the original “race to the bottom” of employers moving to cheaper labor states in a downward spiral. In his January 3, 1938 annual message to Congress, calling for passage of the historic Fair Labor Standards Act, Roosevelt said, millions of workers “receive pay so low that they have little buying power. Aside from the undoubted fact that they thereby suffer great human hardship, they are unable to buy adequate food and shelter, to maintain health or to buy their share of manufactured goods.”

Roosevelt said, “The increase of national purchasing power [is] an underlying necessity of the day.” And so it is today.

Consumer spending makes up about 70% of our economy. The minimum wage sets the wage floor. A low minimum wage institutionalizes an increasingly low-wage workforce.

A growing share of workers make too little to buy necessities—much less afford a middle-class standard of living. The richest 1% of Americans, meanwhile, has increased their share of the nation’s income to a higher level than any year since 1928—the eve of the Great Depression. As we are seeing so painfully, an economy fueled by rising debt rather than rising wages is a house of cards.

“When businesses don't pay a living wage all society pays,” says U.S. Women’s Chamber of Commerce CEO Margot Dorfman. “We pay through poverty and needless disease, disability and death from inadequate healthcare. We pay as women struggle to put food on the table. We pay as businesses and communities suffer economic decline.”

A rising minimum wage is part of the solution, not the problem, in an economic meltdown fueled by spiking oil and food prices, a bursting housing bubble, cascading credit crisis, extreme inequality, and speculation and greed run amok in an unregulated casino economy.

We hear a lot of talk about the importance of consumer spending to recover from our current economic crisis. Well, consumers can’t spend what they don’t have.

Minimum wage workers, like all workers, are also consumers. Minimum wage raises are well-targeted stimulus because they go directly to those who need to spend additional dollars on food, fuel, housing, healthcare and other necessities. Minimum wage workers don't put raises into predatory lending Ponzi schemes, commodity speculation or offshore tax havens. They recycle their needed raises back into local businesses and the economy through increased spending.

Extensive research refutes the claim that increasing the minimum wage causes increased unemployment and business closures.

The buying power of the minimum wage reached its peak in 1968. The unemployment rate went from 3.8% in 1967 to 3.6% in 1968 to 3.5% in 1969. The next time the unemployment rate came close to those levels was after the minimum wage raises of 1996 and 1997. As Business Week put it in 2001, “Many economists have backed away from the argument that minimum wage [laws] lead to fewer jobs.”

Numerous states raised their minimum wages higher than the federal level during the 1997-2007 stagnation of the federal minimum wage at $5.15. States that raised their minimum wages above the federal level experienced better employment and small business trends than states that did not.

The minimum wage sets the wage floor. As Roosevelt and his advisers understood, we have to raise the floor to lift the economy.
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For a longer version of this piece, please see Holly Sklar, "Raising the Minimum Wage in Hard Times"
http://letjusticeroll.org/pdfs/minwageinhardtimes.pdf

Holly Sklar is coauthor of Raise the Floor: Wages and Policies That Work for All Of Us.