Sorting out the economics of a higher minimum wage
In an election year, the politics of economics tends to become all-important. That's certainly the case with Congress's battle over the minimum wage. ``The whole thing gets blown out of proportion,'' says Harvard economist Richard Freeman of the minimum wage. ``It has become a symbol for the different sides. It is sort of ridiculous.''Skip to next paragraph
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The legislative effort of congressional Democrats to boost the minimum wage for the first time in seven years ended last week in a successful Republican filibuster in the Senate.
Democrats will use this news in the campaign to charge that Republicans do not care about the poor. Republicans will counter that a boost in the minimum wage would cut many jobs.
In the presidential race, Vice-President George Bush has defused the issue somewhat by supporting an increase in the minimum wage, but only if the bill provides a ``training wage'' that would allow newly hired workers to be paid at 80 percent of the wage floor for their first 90 days of employment.
The minimum-wage issue is not dead. It will come up again next year in Congress.
Looking at the economic evidence, Mr. Freeman concludes that despite the ``huffle and puffle'' of the politicians, a boost in the minimum wage as proposed by the Democrats - from $3.35 an hour ($6,700 a year) to $4.55 an hour via 40-cent-an-hour increases over the next three years - would not do much to reduce poverty. Nor would it reduce employment by much.
About 85 percent of those workers receiving the minimum wage do not come from poor families, he says. They are youths living in middle-class homes or spouses supplementing the wages of the key breadwinner. For that 85 percent, a higher minimum wage may be nice but not necessarily economically crucial for a family.
Examining the 15 percent of low-wage working poor, a minimum-wage increase would lift 144,000 to 200,000 families above the poverty level, according to a study by Ronald Mincy, a research associate at the Urban Institute in Washington.
Some others among the 2.2 million of working poor families would benefit, too. Mr. Mincy figures that the gap between actual income of these families and the top official poverty-level income amounts to $8 billion. A rise in the minimum wage would reduce that gap by between $750 million and $1 billion.
When the minimum wage goes up, some bosses decide it is no longer profitable or affordable to hire some workers. Estimates of job losses vary greatly, depending on assumptions and in some cases the wishes of the political or economic sponsor of the study.
Some of the latest work was done by Alison Wellington, a student of University of Michigan economist Charles Brown. Mr. Brown was director of research on the Minimum Wage Study Commission, which was set up by Congress during the Carter presidency and which made its report at the start of the Reagan tenure. Its recommendation that the minimum wage be indexed to the inflation rate was ignored by the new government. As a result, the $3.35 minimum wage remained unchanged, while average wages rose. The minimum is now only about 30 percent of the average hourly wage in nonagricultural industries.