Minimum Wage Hike Didn't Raise Jobless
DURING the 1980s, the Reagan administration, business, and many economists held that raising the minimum wage would boost unemployment. Fast-food restaurants and other low-wage employers would be unable to afford the higher costs and, thus, hire fewer workers.Skip to next paragraph
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Well, Congress finally got around to boosting the minimum wage. But economists don't seem to be able to find any evidence of the change putting minimum-wage workers out on the street.
``It seems to have had no effect on unemployment,'' notes Richard Freeman, a Harvard University economist. ``New research has indicated that the [job] costs have been far exaggerated.''
The minimum wage hike was modest - from the $3.35 an hour set in 1981 to $3.80 in 1990 and $4.25 in 1991. Since prices rose 30 percent in the 1980s, these changes restored about half of the lost purchasing power. In real terms, the minimum wage is still below the level of the 1960s or 1970s. A full-time worker heading a family of three and earning the minimum wage in 1992 would have fallen $2,300 below the official poverty line. In 1979, the same worker would have been above that line.
Mr. Freeman says he isn't sure whether a big hike in the minimum wage - say $1 or $2 an hour - would raise unemployment or not. He would want to see more studies in this area. His views are especially interesting as a member of the Clinton-appointed Commission for the Future of Worker/Management Relations. That 10-person group was to present a 150-page fact-finding report - its first - yesterday in Washington. After further hearings, the commission is scheduled to issue a final report, probably recommending changes in labor-management relations, in the fall. The Clinton administration is expected to use those suggestions as a launching point for any changes in labor legislation it might propose in its first term.
The new report deals with much more than the minimum wage. It notes, for instance, that the rate at which workers have been dismissed illegally while trying to introduce a union into a workplace has risen in recent years.
From the report, Freeman cites the example of Judy Ray, an employee of the Jordan Marsh department store in Peabody, Mass. When it became known she was trying to organize a union at the store, bosses followed her to the bathroom, timing her with a stopwatch to see that she stayed no more than five minutes. When she went to a restaurant after work, the store had her followed by a private detective with a walkie-talkie. Finally, she was fired when she miswrote an order during last year's Christmas rush. Ms. Ray took her case to the National Labor Relations Board, won, and is now suing the company in court for allegedly violating her civil rights and defaming her character.
Such civil suits have exploded in number in recent years as employees seek compensatory and punitive damages after finding that other means of dealing with grievances had failed. Freeman says relying on lawsuits for righting wrongs in the workplace is ``unfair'' to those employees unable to afford a lawyer.
On the commission, members from management and labor agreed to maintain that illegal moves by business to keep unions out were rare - perhaps 1 or 2 percent, Freeman says. Whether the commission will recommend legal changes to make union organizing easier and faster remains to be seen.
As for the minimum wage, Freeman doesn't rule out an increase as one way of reducing the number of working poor. But he wants to know if the extra pay would go primarily to middle-class teenagers working in neighborhood shops and restaurants.
A new report by the Economic Policy Institute, a liberal think tank in Washington, finds that the minimum wage is a key determinant of wages for high school educated workers starting out in the job market. When the minimum rises, firms raise the starting wage for nearly 3 out of 5 of these workers, regardless of whether their jobs actually pay the minimum wage.
The study also found that the 1990-91 raises in the minimum wage did not produce any change in employment. Perhaps of significance, one of the authors of the report, William Spriggs, is director-designate of the National Commission for Employment Policy, advising the president and Congress on policies for addressing the employment needs of Americans.