Sunday, January 15, 2006

Speaking of the poor, about that minimum wage...

Let's not forget that the BS about the "minimum wage costing jobs" has been refuted:

One of the more intriguing questions about campaigns like the one in Albuquerque, and those planned for swing states next fall, is whether they reflect a profound sense of public alarm about the divergence between rich and poor in this country. Certainly most Americans do not support higher wages out of immediate self-interest. Probably only around 3 percent of those in the work force are actually paid $5.15 or less an hour; most low-wage workers, including Wal-Mart employees, who generally start at between $6.50 and $7.50 an hour, earn more. Increasing the minimum wage to $7.25 an hour would directly affect the wages of only about 7 percent of the work force. Nevertheless, pollsters have discovered that a hypothetical state ballot measure typically generates support of around 70 percent. A recent poll by the Pew Research Center actually put the support for raising the national minimum wage to $6.45 at 86 percent. Rick Berman, a lobbyist who started the Employment Policies Institute and who is a longtime foe of living-wage laws, agrees that "the natural tendency is for people to support these things. They believe it's a free lunch." On the other hand, the electorate's reasons for crossing party lines to endorse the measures may be due to the simple fact that at least 60 percent of Americans have at one time or another been paid the minimum wage. Voters may just know precisely what they're voting for and why.

In the mid-1990's, the last time Congress raised the minimum wage, the Clinton White House was reluctant to start a war over the federal rate, according to Robert Reich, the former labor secretary. For an administration bent on policy innovation, that would have seemed "old" Democrat. "Then we did some polling and discovered that the public is overwhelmingly in favor," Reich told me recently. "At which point the White House gave the green light to Democrats in Congress." Reich, now a professor at the University of California, Berkeley, happens to view the minimum wage as a somewhat inefficient tool for alleviating poverty (compared with earned income tax credits, say). But he acknowledges that it has a powerful moral and political impact, in states red as well as blue, and especially now, in an era when workers see the social contract with their employers vanishing. "They see neighbors and friends being fired for no reason by profitable companies, executives making off like bandits while thousands of their own workers are being laid off," Reich says. "They see health insurance drying up, employer pensions shrinking. Promises to retirees of health benefits are simply thrown overboard. The whole system has aspects that seem grossly immoral to average working people." As Reich points out, whatever the minimum wage's limitations may be as a policy instrument, as an idea "it demarcates our concept of decency with regard to work."

The idea, Reich points out, isn't new, even if the recent fervor for it is. Massachusetts enacted a state minimum wage in 1912, several decades before the federal minimum wage of 25 cents an hour was adopted in 1938. And most of the wage ordinances of the past decade specifically trace their origins back to Baltimore, in 1995. After that moment, in fact, the phrase "living wage" soon caught on - or, you might say, returned. It was a popular workers' refrain in the late 19th century and was the title of a 1906 book by John Ryan, a Roman Catholic priest. In the late 1990's, a loose national network of advocates sprang up, incorporating organized labor, grass-roots groups like Acorn and the Industrial Areas Foundation and, more recently, the National Council of Churches. Legal advice often came out of the Brennan Center for Justice at New York University's law school, where a lawyer named Paul Sonn helped write wage ordinances and ballot measures for various states and cities...

The Economists Are Surprised

In the years before the enactment of the federal minimum wage in the late 1930's, the country's post-Depression economy was so weak that the notion that government should leave private business to its own devices was effectively marginalized. During the past few decades, though, in the wake of a fairly robust economy, debates on raising the minimum wage have consistently resulted in a rhetorical caterwaul. While the arguments have usually been between those on the labor side, who think the minimum wage should be raised substantially, and those on the employer side, who oppose any increase, a smaller but vocal contingent has claimed, more broadly and more philosophically, that it is in the best interest of both business and labor to let the market set wages, not the politicians. And certainly not the voters.

This last position was long underpinned by the academic consensus that a rise in the minimum wage hurts employment by interfering with the flow of supply and demand. In simplest terms, most economists accepted that when government forces businesses to pay higher wages, businesses, in turn ,hire fewer employees. It is a powerful argument against the minimum wage, since it suggests that private businesses as a group, along with teenagers and low-wage employees, will be penalized by a mandatory raise.

The tenor of this debate began to change in the mid-1990's following some work done by two Princeton economists, David Card (now at the University of California at Berkeley) and Alan B. Krueger. In 1992, New Jersey increased the state minimum wage to $5.05 an hour (applicable to both the public and private sectors), which gave the two young professors an opportunity to study the comparative effects of that raise on fast-food restaurants and low-wage employment in New Jersey and Pennsylvania, where the minimum wage remained at the federal level of $4.25 an hour. Card and Krueger agreed that the hypothesis that a rise in wages would destroy jobs was "one of the clearest and most widely appreciated in the field of economics." Both told me they believed, at the start, that their work would reinforce that hypothesis. But in 1995, and again in 2000, the two academics effectively shredded the conventional wisdom. Their data demonstrated that a modest increase in wages did not appear to cause any significant harm to employment; in some cases, a rise in the minimum wage even resulted in a slight increase in employment.

Card and Krueger's conclusions have not necessarily made philosophical converts of Congress or the current administration. Attempts to raise the federal minimum wage - led by Senators Edward M. Kennedy on the left and Rick Santorum on the right - have made little headway over the past few years. And the White House went so far as to temporarily suspend the obligation of businesses with U.S. government construction contracts to pay so-called prevailing wages (that is, whatever is paid to a majority of workers in an industry in a particular area) during the rebuilding after Hurricane Katrina. David Card, who seems nothing short of disgusted by the ideological nature of the debates over the wage issue, says he feels that opinions on the minimum wage are so politically entrenched that even the most scientific studies can't change anyone's mind. "People think we're biased, partisan," he says. And he's probably right. While Card has never advocated for or against raising the minimum wage, many who oppose wage laws have made exactly those assertions about his research. Nonetheless, in Krueger's view, he and Card changed the debate. "I'm willing to declare a partial victory," Krueger told me. Some recent surveys of top academics show a significant majority now agree that a modest raise in the minimum wage does little to harm employment, he points out.

If nothing else, Card and Krueger's findings have provided persuasive data, and a degree of legitimacy, to those who maintain that raising the minimum wage, whether at the city, state or federal level, need not be toxic. The Economic Policy Institute, which endorses wage regulations, has succeeded recently in getting hundreds of respected economists - excluding Card and Krueger, however, who choose to remain outside the debate - to support raising the federal minimum to $7 an hour. That would have been impossible as recently as five years ago, says Jeff Chapman, an economist at the E.P.I. Even Wal-Mart's president and C.E.O., Lee Scott, recently spoke out in favor of raising the minimum wage. It wasn't altruism or economic theory or even public relations that motivated him, but a matter of bottom-line practicality. "Our current average hourly wage for workers is $9.68," Lee Culpepper, a Wal-Mart spokesman, told me. "So I would think raising the wage would have minimal impact on our workers. But we think it would have a beneficial effect on our customers."

Well, beneficiaries of a living wage would spend more money & stimulate the economy.

But of course we need a global living wage...

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