Giving Workers Their Due - despite the economic boom, the minimum wage leaves recipients in poverty - Brief Article

Humanist, July, 1999 by John Buell

Recent debate in Washington, D.C., and in many cities and states across the United States on proposals to raise the minimum wage suggests an obvious question: why, in the midst of a so-called unprecedented boom, do we need an increase? Two major trends within our political economy bring this issue to the fore.

The boom itself is unprecedented in its parsimony toward the typical worker. Even as late as 1997--five years into this economic expansion--median wages were thirty-three cents an hour less than in 1989. Only in the last eighteen months have working-class wages started even a modest move upward. Here in my home state of Maine, with nearly 30 percent of workers at or below poverty-level wages, slow wage growth in the midst of an economic expansion presents a severe challenge.

That challenge has been exacerbated by a second trend: the push to get welfare recipients off assistance and into paying work. However, since most of the poor work--contrary to the popular stereotype--the elimination or reduction of their benefits makes it imperative that jobs pay a living wage.

The recent minimum-wage debate is symbolic of an underlying crisis. The job market that now must increasingly sustain our citizens leaves a startling number in poverty, and government is ever less willing to pick up the slack. Even in an economic expansion, our private welfare system, including especially food pantries, are stretched to the breaking point.

Would a higher minimum wage improve this plight? Some large considerations ought to frame this debate.

The small business community has long maintained that increasing the cost of labor always reduces the demand for it. Maine's Independent governor, Angus King, recently speculated that a hypothetical firm hiring twenty workers might have to lay off three if wage standards rose. He implies that this is simple supply and demand and that interfering with the magic of the market is always counterproductive.

These conservatives, especially small-business leaders, should devote as much time to economic history as to the abstractions of market theory. University of Massachusetts economist Robert Pollin points out that the era of small government (1875-1941)--when unions were repressed and wage and hour legislation was generally voided by the courts--saw higher levels not only of unemployment but of business failure than the classic era of big government. There is good reason to suspect--contrary to conventional business wisdom--that trickle-up economics works better than trickle-down.

Keeping wage growth strong, through both unions and rising minimum-wage standards, is more than simply a moral imperative. Conservatives consistently forget that wages are not only a cost to business but are also about two-thirds of all the dollars spent on consumer products. The current federal minimum wage of $5.25 is still about a third less in real terms than two decades ago, and productivity gains have been substantial in these years.

The argument that employers can't afford this increase seems tenuous at best, nor is this point simply speculative. A 1998 survey of small businesses by Bard College economists found that fewer than 3 percent of small businesses would reduce employment if the minimum wage were pushed even to six dollars an hour. So it is more likely that fewer than one in twenty workers of Governor King's hypothetical workers would be priced out of her or his job by a modest boost in the wage standard. Furthermore, increasing consumer demand would likely create openings elsewhere for that displaced worker, especially if adequate training and placement options were made available.

Do higher minimum wages enacted at the state level send a signal that such "progressive states" are tough places to do business? Ideally, minimum-wage standards should be adopted at the federal or even international level. But there is good reason to suspect that, in many instances, improved state and local standards would be sustainable. Vermont and Massachusetts have higher minimum-wage standards than does Maine, but there is no evidence of businesses moving across the border to exploit Maine's cheap labor.

The real issue facing many states is how they want to compete in the national and global economy. Is the primary competitive strategy going to be reliance on cheap labor? Conservatives often argue that you get what you pay for. That logic applies in spades to labor. Numerous historical and cross-cultural studies of workplaces suggest that, when workers are paid badly, absenteeism, lethargy, and even sabotage increase. When workers are paid fairly and offered job ladders that encourage increasing levels of responsibility, performance improves dramatically.

Low minimum-wage standards in effect rely on social subsidies for low-road economic development. Workers' families cannot live on the current minimum wage. Either public welfare or private charity must pick up the difference. In the process, human resources are badly squandered.