The Minimum Wage Debate
By Charles Lehman
Possible changes in the federal minimum wage are likely to be a major national issue for both political and economic reasons during 2014. Any increase will affect the three and a half million workers across all age, gender, race and work hours categories employed in a variety of lower skilled jobs.
Why a Minimum Wage Increase Is a National Debate?
With continuing stagnant incomes and high unemployment, some politicians, program administrators, advocates, and economists see an increase as one way to improve incomes, reduce poverty, and address economic inequality. Taking into account inflation, the current minimum wage is no higher than 1981 in real terms. Politically, a majority of Americans see this as a fairness issue; a recent Gallup poll found 76% of those surveyed supporting an increase to $9/hour.
The Minimum Wage Workforce
The federal minimum wage, first enacted in 1938, is currently $7.25 per hour with a number of exceptions for part time, agricultural, disabled, full time students, inexperienced youth, and tipped employees. About 20 states and a number of municipalities have enacted a higher wage up to $9.19 in Washington State and $10.55 in San Francisco.
There are just over three and a half million hourly workers in the United States earning at or below the minimum. This is nearly 5% of the 75 million hourly wage total national workforce. Teenage workers account for about a quarter of all minimum wage workers, and half are 25 years and older. There are twice as many women as men; minority groups comprise 40% of this wage level. Those working fulltime in this group total 1.3 million workers or over 37% of the total.
Minimum wage workers are concentrated in the food service industry, especially fast food and non tipped restaurant and bar workers (servers receiving tips have a lower minimum), and retail trade workers such as cashiers and sales clerks. There are also significant numbers in occupations such as child care, nursing assistant, automobile service, and recreation workers. Half of the job growth in recent months has been in these industries and occupations.
The current Democratic Senate proposal which the Administration supports is an increase to $10.10 per hour over two years with an automatic annual increase tied to the consumer price index along with tax breaks for smaller businesses. (An earlier bill amendment at this amount was defeated in the House.) Recent demonstrations by minimum wage workers in some large cities are requesting the rate be set at $15 per hour.
Economic Benefits of Minimum Wage?
Economic studies of the effects of increases on employment have come to different conclusions. Traditional economic theory backed by some studies find as labor costs go up the number of jobs for these workers will decline with employers offsetting higher costs through longer hours or further automation. However, a number of economic studies in recent years conclude otherwise. They find the employment impact, if any, to be small basing their conclusions on actual comparisons within and between states and communities that have set different rates. These studies find that higher labor costs are offset by reduced turnover with lower hiring and training costs, better efficiencies, and to a lesser extent small price increases and a willingness to accept lower profits. Other ways they find not decreasing workers are reductions in hours, fringe benefits or wages of highly paid workers. If these conclusions are correct, the levels could be raised moderately without significantly causing a decline in employment for these lower wage workers. However, most economists believe an immediate wage increase to a substantially higher level such as $15/hour would have major negative impact on employment of lower skilled workers.
Most analysis concludes that the improvement on overall poverty rates may not be large since many poverty level individuals are not in the labor force, already live in non poverty households, or are likely to be the ones most affected to the extent there is a lay off.
Alternatives to Increasing Minimum Wage
The most widely considered alternative to a minimum wage increase is an increase in the federal income earned tax credit (EITC) which provides payment supplements to those workers earning below a certain annual level. However, for reasons both political (requires an increase in federal budget) and bureaucratic (difficult to administer) the likelihood of an increase is not considered likely. Longer term, the solution may be better education and training for lower skilled workers accompanied by a growing economy making available higher paying jobs. In light of political and economic barriers this may be difficult to achieve.
Detailed statistics on the minimum wage population including numbers by state and region as well as demographic group, industry and occupation are published by the Bureau of Labor Statistics as part of their Labor Force Statistics for the Current Population Survey Characteristics of Minimum Wage Workers: 2012. A good summary of the conflicting research is Why does the Minimum Wage Have No Discernable Effect on Employment, John Schmidt, Center for Economic and Policy Research February 2013
Charles Lehman is a labor economic director of an economic consulting company in Albuquerque NM and a charter member of the New Mexico Career Development Association. He can be reached at CLehman@nm.net.