Increased Minimum Wage: Historically Right

Sixty-nine years ago, Franklin D. Roosevelt signed the Fair Labor Standards Act of 1938, which established the nation’s first minimum wage. Urging the passage of this legislation, Roosevelt declared “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By living wages I mean more than a bare subsistence level—I mean the wages of a decent living.” Now, nearly seventy years later, those words seem as relevant as ever. America is long overdue for an increase that puts workers at a living wage level. The minimum wage in the United States has been frozen at $5.15 an hour since 1997 and millions of American workers are falling further and further behind. At this rate, workers would have to work 11.2 hours just to fill up their gas tank. But the story gets much worse than that.

The current federal minimum wage of $5.15 is not high enough for someone even to make a decent living in the United States. See the inserted chart. It just proves that current minimum wage is well below the red poverty line, or better referred to as Roosevelt’s bare subsistence level. For someone working full time (40 hours a week, 52 weeks a year), their yearly earnings would be approximately $10,712 based on the minimum wage level, nearly 40% below the current poverty level of $16,600 for a family of three (as of 2006). So why has the federal government not raised the minimum wage level? After all, more than two dozen states in America already have minimum wages set above the federal level.

The federal government finally took steps to close this gap on Thursday February 1, 2007, when the Senate voted overwhelmingly (94-3) to boost the federal minimum wage by $2.10 to $7.25 an hour over the course of two years. The legislation would raise the minimum wage in three steps. It would grow to $5.85 an hour upon taking effect 60 days after the President signs it into law, then to $6.55 an hour a year later, and to $7.25 an hour a year after that. Senator Edward Kennedy (D-Mass.) stated that “Passing this wage hike represents a small but necessary step to help lift America’s working poor out of the ditches of poverty and onto the road toward economic prosperity.” Unfortunately, it should still be noted that even at its highest level of $7.25 per hour, the annual equivalent is $15,080–still below today’s poverty level but certainly an improvement from the status quo. Roosevelt would not be entirely happy, but might be feeling a little better.

Nothing stays the same, especially in the economy. The federal minimum wage must increase on a regular basis; if not, the working poor will only get poorer as the value of the minimum wage sinks below inflation and falls further behind the cost of living in the United States. Since the last wage rise in 1997, the purchasing power of workers earning minimum wage has been severely eroded and has decreased by more than 20%. So, why fight the extra boost? Not surprisingly, as with everything in America, there is an opposing point of view. Many critics (and there really are many) continue to raise the same tired arguments every time the thought of increasing the minimum wage level is considered: an increase will harm the economy, destroy job growth, and shut down small businesses. Close examination, however, shows that these criticisms are not really true. To see why, let us take a closer look at each one of these myths:

Negative Economic Effect: The minimum wage increase will actually boost earnings for thirteen million American workers, which constitutes for 9.8% of the workforce. This, in turn, raises the disposable income of the workers and decreases their dependence on state and federal subsidies. Living wage workers are guaranteed to spend the money they earn in their local economy. Dan Gardner, Oregon labor commissioner, comments that minimum wage work force are “not saving for a Hawaiian vacation.” Since these blue collar workers are supporting their families and cannot afford to save, the extra money earned will get pumped right back into the economy. Thus, a wage hike directly expands the economy and there is no negative economic effect.

Destroy Jobs: Another myth about the effects of an increase in the federal minimum wage is that it will destroy job growth and shut down small businesses. But the trends of the economy after the 1990-91 and 1996-97 wage jumps show no measurable negative impact on employment. In fact, between 1997 and 2003, “small business employment increased by 9.4% in higher minimum wage states, compared to 6.6% in states at a federal level.” According to the Economic Opportunity Institute, no studies have found statistically significant job loss that can be associated with these wage increases. In fact, it is just as accurate to assert job gains linked to the minimum wage increase.

Shut Down Small Businesses: This is the most popular argument against raising the minimum wage, because it seems so logical at face value: if the expenses of small businesses, many that are already marginally profitable, are increased, the business will be put over the edge. Small businesses themselves are the loudest voices in this regard. But again, take a look at history. After the wage increase of 1997, the Center for American Progress asserted that “the number of small businesses increased by 5.5% in higher minimum wage states, compared to 4.2% in states at the federal minimum wage level.” Why does this happen? According to Texan Congressman Al Green, the theory is that businesses absorb the costs incurred by the wage hike through “higher productivity, lower recruiting and training costs, decreased absenteeism, and increased worker morale.” But whatever the rationale, the New York-based Fiscal Policy Institute (FPI) contends that the the number of small businesses actually grew in states where the minimum wage was higher.

The myths are not justified. The minimum wage does not have a negative economic effect, destroy jobs, or shut down small businesses. Roosevelt was right to fight back the critics in his day, and it is right to continue fighting today. Senator Edward Kennedy (pictured) firmly deals with opponents of this issue and asserts that “in the first four years after the last minimum wage increase in 1997, the economy had its strongest growth in thirty years. Nearly 11 million new jobs were added, an average of more than 200,000 new jobs a month.” So, why not just better the lives of millions of Americans?