Will hiking our skirts make us taller? Debating the minimum wage

Just as a bill is pending before Congress to increase the minimum wage, so such a bill has been introduced in the Pennsylvania legislature. The Pennsylvania bill would raise the minimum rate in the state from $5.15 to $6.75 as of January 2006 and to $7.15 as of January 2007.

Proponents of such bills tout them as a simple matter of social justice, and opponents predict that jobs will be lost and unemployment and inflation will rise. Who is right? What is at stake?

Certainly raising the minimum wage sounds like one quick way to combat poverty. Raise the wages of the lowest paid workers, and their family income will rise and the poverty gap will diminish.

Alternatively, since 40 percent of all minimum wage workers have less than a high school degree, why don’t we just issue them a degree and thereby hike their labor market value and subsequent earnings? No, that might smack of fraud. How does a fake degree change a worker’s productivity?

Economists and the general public are divided on the issue. The majority of economists see the minimum wage as poor policy. The majority of the public sees the minimum wage as a “good thing.” The group with the most votes wins, and the minimum wage appears to be here to stay.

So, should Christians who practice sound economics support or oppose the current proposed hike in the minimum wage?

Let’s consider who is impacted. Obviously, since both liberals and conservatives are fighting over the issue, there is a broad range of conflicting numbers that vary with such definitions as “workers affected” and “relational dependents.”

The easiest approach is to go directly to the Bureau of Labor Statistics data for 2004. According to the BLS, in 2004 there were 520,000 U.S. workers being paid exactly the prevailing minimum wage and 1.5 million workers being paid less than minimum wage. The minimum wage was instituted in 1938 as part of the Fair Labor Standards Act, and some groups of workers were exempted from coverage, including apprentices, workers with disabilities and tipped employees.

Of the workers receiving minimum wage in 2004 , one-third were teenagers and one-half were under age 25. Only two percent of workers age 25 and over earned minimum wage or less. Seventy percent of minimum wage workers have a high school degree or less. Sixty-two percent have never been married and 59 percent work part-time. Seventeen percent of minimum wage workers live in poor households and nine percent are heads of poor households.

Most of the benefits from an increased minimum wage would go to nonpoor households. Approximately four percent of the increase would go to poor African-American households and to poor single female headed households.

So, increasing the minimum wage will positively impact a limited portion of the poor and an especially small segment of full-time employed heads of household.

Moreover, economists would argue that the extra dollar or two to be paid to the minimum wage worker may or may not be fake (like simply awarding a high school degree). More pay may increase worker morale, lower absenteeism and improve productivity, or it may just be spent on more lottery tickets.

If increased productivity does not occur, then employers will cut back on their workforce, employment will decline and unemployment will rise as new workers seek jobs at the higher minimum wage. Increased labor costs will also be passed on to consumers of the firms’ goods and services in higher prices and the inflation rate will rise. There is actually research evidence in support of both sides of this argument.

Right now, I would suggest that the economists not sweat it. Because it has increased so infrequently over the past twenty years, the minimum wage has fallen to a very low level relative to the prevailing market wage (e.g., $15.50 for nonsupervisory workers in the services industries).

An increase of a few dollars over a year or so will not cause much of a ripple, even in the market for low wage workers. No great harm will be done and perhaps some working poor, with both increased earnings and an increase in their Earned Income Tax Credit, will make their way above the poverty line. Certainly Christians would favor this…and economists would have little reason to grumble.

Comments are closed.