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The Minimum Wage Increased Thursday--Why It Matters And Why It's Not Enough

Raising the Minumum Wage Works
Of course, market fundamentalists argue that the minimum wage is one of those defective socialist mandates that Cass Sunstein just loves to hate. Higher minimum wages mean less jobs, they argue, using their one-size-fits-all Economics 101 models. Well, in his 1996 book, Everything for Sale: The Virtues and Limits of Markets, Robert Kuttner used behavioral economics as one of his tools to help understand why this is a load of crap. Labor markets aren't like other markets, he concluded, and a wealth of research since then backs up the arguments he made then. Low wage workers tend to spend everything they make, so they pump more money into the local economy. Increased wage rates make it more costly to lose experienced workers and spend time training new ones, so turnover rates tend to decline. And higher wage rates make it more important to look for ways to raise productivity--either through buying new equipment, investing in more training, or finding ways to work smarter. These are all factors that simplistic models routinely fail to account for, but that end up having major impacts in the real world.
As "A Just Minimum Wage" reports:
More Jobs, Less Poverty After Last Minimum Wage Hikes The minimum wage was last raised in two steps: increasing from $4.25 to $4.75 an hour in October 1996 and then to $5.15 in September 1997. In the words of a 2000 report by the Clinton administration's National Economic Council, "Since the 1996-97 increase in the minimum wage, the American economy-and labor markets in particular-have continued to perform very strongly. Between September 1996 and February 2000, 10.2 million jobs were created... even stronger growth than in the previous 2 years. In retail trade, which has a large concentration of minimum wage workers, there were 1.4 million new jobs."49
Contrary to what minimum wage critics predicted, unemployment went down across the board across the country-including among people of color, teenagers, high school graduates with no college, and those with less than a high school education. As the Department of Labor Monthly Labor Review summed it up, 2000 ended with the overall unemployment rate at 4 percent, the lowest rate since 1969. "Every census region and geographic division attained its lowest quarterly unemployment rate on record in 2000." Looking more closely at fourth quarter 2000, the teenage unemployment rate of 12.9 percent was the lowest since 1969. "The unemployment rates for Hispanics (5.6 percent) and blacks (7.5 percent) declined to record lows in 2000, whereas the rate for whites (3.5 percent) was unchanged from the prior year's 3-decade low."50
The higher minimum wage reduced poverty, including among teenagers and high school dropouts-two demographic groups that opponents asserted would be disproportionately harmed by such an increase.51
In short, between 1996 and 2000, the economy had unusually high growth, low inflation, low unemployment and declining poverty rates-until the Federal Reserve purposefully slowed economic growth by repeatedly raising interest rates during 1999 and 2000. The economy broke the record for the longest expansion in U.S. history in February 2000. (The economic expansion officially lasted ten years from March 1991 until March 2001, although the stock market bubble burst in March 2000.)
But there's even more:
"New research on the minimum wage has swayed a substantial part of the economics profession over the past decade towards support for a higher minimum wage," the Keystone Research Center observes.53 In 2004, 562 economists, including four Nobel Prize winners in economics, endorsed a statement in support of raising the minimum wage. "The minimum wage has been an important part of our nation's economy for 65 years," the economists said. "It is based on the principle of valuing work by establishing an hourly wage floor beneath which employers cannot pay their workers... The minimum wage is also an important tool in fighting poverty."54

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The Limits of Individual Effort
Finally, one of the most powerful narratives we are working against is the individualist narrative that says people are to blame for their own poverty. This is an argument that can seem to make sense on the individual level. All things being equal, it makes sense that someone who works harder will do better economically. But, of course, all things are rarely, if ever equal. And one thing that no worker has control over is the state of the overall economy, including the sorts of jobs that are available.
In contrast to the myth, there is a two-fold reality: first, that even those with more education are falling behind, and second, that most job growth is coming in fields that don't require much education. Both these factors significantly limit how much an individual can do to improve their economic status through education--and that's not even considering the fact that education is more costly then ever before:
We often hear that increased pay inequality is due to the economy's demand for a more educated, more skilled workforce. The reality is that workers are more educated than past generations, but pay is falling behind. The reality is that high-tech workers are losing ground as well.42 The reality is that most of the 20 occupations expected to produce the most jobs in the future don't require higher education and don't pay high wages. (See Table 2.1.)
The largest number of workers paid at or below minimum wage come from retail trade, leisure and hospitality, and education and health services. The occupations with the largest percentage of workers paid at or below minimum wage are:
• Food preparation and serving related occupations-19 percent at or below $5.15 and 66 percent under $8.50 in 2004.
• Personal care and service occupations-6.7 percent at or under $5.15 and 48 percent under $8.50.
• Farming, fishery and forestry occupations-3.5 percent at or under $5.15 and 56 percent under $8.50.43
Most of those occupations are among the occupations projected by the Bureau of Labor Statistics to produce the largest job growth between 2002 and 2012. Only 5 out of the 20 top job producers (see table below) have median hourly pay that is higher than the overall median hourly wage of $13.84 for 2004. The rest are lower. Seven of the 20 occupations pay at or below $9.04, about the value of the minimum wage of 1968, adjusting for inflation.