Economists' Statement Regarding the Need to Raise the Minimum Wage

by Chris Sturr | September 27, 2006

The folks at the Economic Policy Institute are gathering signatures from economists in support of an increase in the minimum wage. The federal minimum wage has not been increased in nine years, meaning that, when adjusted for inflation, workers at the bottom have had their pay slashed. There will be ballot initiatives in 6 states this fall to boost the minimum wage. Use this info to quiz your candidates and write letters to the editors.

ECONOMISTS’ STATEMENT SUPPORTING AN
INCREASE IN THE MINIMUM WAGE

The minimum wage has been an important part of our nation’s economy for 68 years. It is based on the principle of valuing work by establishing an hourly wage floor beneath which employers cannot pay their workers. In so doing, the minimum wage helps to equalize the imbalance in bargaining power that low-wage workers face in the labor market. The minimum wage is also an important tool in fighting poverty.

The value of the 1997 increase in the federal minimum wage has been fully eroded. The real value of today’s federal minimum wage is less than it has been since 1951. Moreover, the ratio of the minimum wage to the average hourly wage of non-supervisory workers is 31%, its lowest level since World War II. This decline is causing hardship for low-wage workers and their families.

We believe that a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed. In particular, we share the view the Council of Economic Advisors expressed in the 1999 Economic Report of the President that “the weight of the evidence suggests that modest increases in the minimum wage have had very little or no effect on employment.” While controversy about the precise employment effects of the minimum wage continues, research has shown that most of the beneficiaries are adults, most are female, and the vast majority are members of low-income working families.

As economists who are concerned about the problems facing low-wage workers, we believe the Fair Minimum Wage Act of 2005’s proposed phased-in increase in the federal minimum wage to $7.25 falls well within the range of options where the benefits to the labor market, workers, and the overall economy would be positive.

Twenty-two states and the District of Columbia have set their minimum wages above the federal level. Arizona, Colorado, Missouri, Montana, Nevada and Ohio, are considering similar measures. As with a federal increase, modest increases in state minimum wages in the range of $1.00 to $2.50 and indexing to protect against inflation can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed.

4 comments

Comments (4)

  1. I agree. It’s time for the US to have a more co-operative understanding of economics and not be focused around corporate profits and the entrepreneur in general.Also quality of service has come at a cost. Here is another great externalization of labor that is rampant in business. Self service stations ranging from gas stations to your favorite coffee shop to the automated voice response units with selection menus via number pads. Two to five minutes robbed from us to save on labor costs at the expense greater inconveince and and my time and overall reduction of the quality of life.They should pay us that 25 cents for working on there behalf.

  2. Some time ago I did a post on < HREF="http://www.wredlich.com/stop-wasting-money/2006/08/minimum-wage-different-kind-of-waste.html" REL="nofollow">minimum wage<> on my Stop Wasting Money blog. Someone from this blog recently posted a comment and that prompted me to take a look over here.The fundamental problem with minimum wage is that it ignores and/or distrusts markets and presumes that government will do things better. As I noted on my blog, I have yet to see anyone come up with anything like a sound method for determining what minimum wage should be.It is commonplace now to see studies saying that minimum wage does not have negative effects, or that those effects are small. Fine. If that’s the case, why not set minimum wage at $50/hour? Because at some point the increase in minimum wage will have substantial effects.As long as you’re setting the minimum wage by guesses, you’ll never know when you’re going to trigger major problems. The answer from economics on this question is quite simple. Let the market decide. There is no market failure here that is so important as to warrant government intervention.Increases in minimum wage are particularly damaging to non-profits and businesses where margins are low. My employees make well over minimum wage, but I’m an < HREF="http://www.redlichlaw.com" REL="nofollow">attorney in Albany, New York<> and my business has fairly high margins. I pay my employees well because the market warrants such pay in my field. Not all businesses have that luxury.

  3. I disagree with the former post. True, small buisinessess with high yeilds, such as lawfirms, can and usually do pay more than minimum wage, but this is because the market dictates that they do so. demand in these jobs is in favor of the employees, who are required to have more experience and, facing low wages, can likely find a job with a higher paying firm. On the other had, in service jobs (such as in gas stations, fast food restaurants, and grocery stores)the employers have plenty of aplicants to choose from and focus more on profits for themselves at the cost of low employee moral, high turnover rates, and the general inescapable poverty for the working class. You see when all or most of the employers of low skill workers in an area pay the same low salary it is not a viable option to simply “find another job.” A salary floor in essential to ensure that the wages earned are proportionate to the cost of living. As a student I understand the plight of young adults who struggle to pay for housing, food, gas, etc. while balancing the time time and money needed to enroll in classes and learn the skills needed to get better jobs, ones which the market for the position can proporly dictate the minimum wage.

  4. I would also like to add that as a lawyer you probably have no idea what it’s like to live on minimum wage.

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