by David Kotz
Whenever someone proposes a measure to benefit working people, the establishment has the same reply: “That would only hurt the very people you are trying to help.” This applies to proposals to raise the minimum wage, now just $7.25 an hour at the federal level. Of course, the opposition of the rich and powerful to a higher minimum wage could not be because it would redirect part of the profits to hard-working, low-wage workers. No, they insist that raising the minimum wage would only cause low-wage workers to lose their jobs. When rich folks tell such tales, there is reason to be skeptical.
Other posts on this blog have shown that the best studies find no significant job loss, or even a job gain, from raising the minimum wage. Yet the claim of job loss might seem to be a convincing one. After all, if the price of apples goes up, some apples might go unsold. But the market for labor is not the same as the market for apples.
If the minimum wage is increased, more workers will get pay increases than just those making the minimum wage. Economists agree that the wage for jobs that pay not much above the minimum wage also will rise. Since low-wage workers spend just about all of their pay for goods and services, the rising pay for low-wage workers increases total demand in the economy. The result is that businesses will have an incentive to to hire more workers to meet the rising demand.
Some have been calling for a minimum wage increase to $10.10 per hour. In February 1968 the federal minimum wage was raised to its highest level ever in buying power, from $1.40 to $1.60 an hour. In today’s prices, that was a raise from $9.95 to $10.94 an hour. Yet the unemployment rate fell, from 3.7% in 1967 to 3.5% in 1968 (and to 3.4% in 1969). The economy was much less productive in 1968 than it is today, yet businesses were able to pay a minimum wage of $10.94 in that year, far above today’s minimum wage, with virtual full employment.
A higher minimum wage has other benefits besides the possibility of generating more demand and jobs. When business faces rising wages for their employees, it puts pressure on the business to find ways to make their workers more productive. This can be done by reorganizing the work process or introducing new technologies. In the long run, it is rising labor productivity that makes it possible for wages and living standards to go up over time.
The federal minimum wage has not been increased since July 24, 2009. Since then consumer prices have risen by 8.9%. The already low buying power of the minimum wage has fallen still further in recent years.
The low rate of pay for jobs at the current minimum wage means that the businesses are being subsidized by the taxpayers. A minimum wage of $7.25 per hour comes to just $290 per week before taxes for full-time work. Most minimum wage workers can survive only by relying on public programs such as food stamps. Every business should pay wages that cover employees’ necessary living expenses without dependence on government income supplements. Paying less forces the taxpayers to subsidize the profits of wealthy business owners!