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Is It Time to Raise the Minimum Wage?

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During World War II, the Office of Price Administration (OPA), established by one of Franklin Roosevelt’s executive orders in 1941, was given the power to ration the supply of certain goods and freeze prices on all goods except agricultural commodities. The OPA was abolished in 1946 and is generally defended today only as a wartime measure.

Richard Nixon’s “temporary” imposition of wage and price controls in 1971, turned into more than two years of Soviet-style central planning in the United States with a cost-of-living council and pay boards and price commissions to approve requested price increases after a 90-day freeze. I don’t know of anyone of any political persuasion who defends Nixon’s actions today.

For some strange reason, the price of labor is viewed differently.

The federal minimum has been at $7.25 since 2009. It is the result of the Fair Minimum Wage Act of 2007, which raised the federal minimum wage in three steps from $5.15 per hour to $5.85 per hour on July 24, 2007, to $6.55 per hour on July 24, 2008, and finally to $7.25 per hour on July 24, 2009.

Three Democratic members of Congress think it’s time to raise the minimum wage.

Reps. John Conyers Jr. of Michigan, Jesse Jackson Jr. of Illinois, and Dennis Kucinich of Ohio recently announced the introduction of the “Catching Up to 1968 Act of 2012” at a press conference in Washington, D.C. H.R. 5901, which was introduced in Congress by Jackson on June 6, currently has twenty co-sponsors. It would raise the federal minimum wage to $10 per hour effective “60 days after the date of enactment of the Catching Up to 1968 Act of 2012” and tie further increases every year “to the Consumer Price Index for all urban consumers for the preceding year.”

The idea behind the bill’s title is that at $10 an hour, the minimum wage would be about what it was in 1968, when adjusted for inflation.

“This legislation is long-overdue and sorely needed,” said Conyers. “More than 30 million Americans would see their wages increased, which would provide an immediate boost to the economy.”

Barack Obama hasn’t yet endorsed the bill, although as president-elect he pledged to raise the minimum wage to $9.50 an hour by 2011 and index it to inflation.

Consumer advocate Ralph Nader, who was also on hand to announce the legislation at the press conference, likewise made some remarks:

At a time when the issue of income inequality has been elevated in political discourse, it is surprising that a plight of millions of workers throughout the country hasn’t been addressed….

… Nearly 23 million Americans are unemployed or underemployed. A single Wall Street executives’ [sic] compensation of $15 million would pay the annual wages of over 700 workers working at a minimum wage of $10 per hour….

It is way past time for Congress to wake up and enact a $10 minimum wage to catch up with 1968!

In an interview with Democracy Now! Nader said the minimum wage “is basically an issue that reflects the craven, cruel nature of the Republican Party on Capitol Hill, but it also reflects the caution, the cowardliness, the betrayal of the Democratic Party of its core constituency.”

 

Does that mean that Republicans in Congress are opposed on principle to raising the minimum wage?

Not at all.

While campaigning in January, Republican presidential candidate Mitt Romney was asked about raising the minimum wage and replied, “My view has been to allow the minimum wage to rise with the CPI or with another index, so that it adjusts automatically over time.”

One of his rivals at the time, former Pennsylvania senator Rick Santorum, said in 2005 in reply to criticism by Sen. Ted Kennedy, “I have not had any ideological problem with the minimum wage.” Democrats and Republicans were at the time each pushing their own version of a plan to increase the minimum wage.

As mentioned previously, the last time Congress voted to raise the minimum wage was in 2007 with the passage of the Fair Minimum Wage Act. That was Title VIII of the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act (H.R.2206) that was agreed to by a majority of Republicans in the House and Senate and signed into law by George W. Bush on May 25, 2007.

In a January 2007 interview with NPR, Senate Republican leader Mitch McConnell said about raising the minimum wage,

Well, we’ve been willing to raise the minimum wage for quite some time. The problem is we haven’t been able to do it in a bipartisan way. We offered a package when we were in the majority last Congress that raised [the] minimum wage as Senator Kennedy had suggested, but also modify the death tax, which is something the Republican majority cared a lot about.

The president’s indicated and we agree that the raising of the minimum wage is a good idea. We would like to, however, package that with some small businesses tax and regulatory relief to minimize the job loss that is the inevitable result of raising the minimum wage. But this is a deal that I think we ought to be able to make.

But it’s not just Republicans in Congress. In an October 2010 pollconducted by the Public Religion Research Institute, a majority of Republican respondents favored raising the minimum wage. Even among those who identified themselves as belonging to the Tea Party, 47 percent approved of the increasing the federal minimum.

The only difference between Democrats and Republicans when it comes to raising the minimum wage is the timing and the amount.

The federal minimum wage began as part of the Fair Labor Standards Act of 1938, which also sets overtime pay standards and regulates the employment of minors. About twenty states and some cities have a higher minimum wage than the federal minimum. The state of Washington leads the states with a minimum wage of $9.04. Likewise, the city of San Francisco, with a minimum wage of $10.24.

Proponents of the minimum wage would have us believe that Americans would all be toiling in sweatshops for less than 25¢ an hour (the original federal minimum wage) were it not for the federal government’s intervening to stop businesses from exploiting their workers.

But if that is the case, why is it that now, with a minimum wage in place, most workers make substantially more than the minimum? According to the Bureau of Labor Statistics (BLS), only about 5 percent of U.S. hourly-paid workers have wages at or below the prevailing federal minimum (there are some exemptions to the minimum-wage provisions of the law). That is down substantially from 15 percent of workers in 1981 who had wages at or below the legal minimum.

Oh, but the minimum wage is needed to combat poverty and income inequality. Since no family can survive on an income less than the minimum wage, it is needed to increase their standard of living. And without a minimum age, the poor will get poorer as the rich get richer.

But not only do relatively few workers earn the minimum wage, those who do, tend to be temporarilylimited to certain segments of the economy. According to the BLS, the main characteristics of those earning the minimum wage are:

Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly-paid workers, they made up about half of those paid the Federal minimum wage or less. Among employed teenagers paid by the hour, about 23 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over.

Among hourly-paid workers age 16 and over, about 11 percent of those who had less than a high school diploma earned the Federal minimum wage or less, compared with about 5 percent of those who had a high school diploma (with no college) and about 2 percent of college graduates.

Part-time workers (persons who usually work less than 35 hours per week) were more likely than full-time workers to be paid the Federal minimum wage or less (about 13 percent versus about 2 percent).

The industry with the highest proportion of workers with hourly wages at or below the Federal minimum wage was leisure and hospitality (22 percent). About one-half of all workers paid at or below the Federal minimum wage were employed in this industry, primarily in restaurants and other food services. For many of these workers, tips and commissions supplement the hourly wages received.

From the standpoint of business, it has been argued that the minimum wage — even though it increases labor costs — is beneficial because it encourages efficiency, automation, and technological development — things that offset higher labor costs.

From the standpoint of the worker, it has been argued that the minimum wage increases the work ethic, encourages people to work rather than commit crimes and sell drugs, and directs workers to train for higher-skilled jobs.

From the standpoint of government, it has been argued that the minimum wage removes people from the welfare rolls and acts as an economic stimulus by giving low-income people more money in their pockets to spend. The added benefit, of course, is that the costs of those things are borne by businesses.

But if all of those claims are true, then why not raise the minimum wage to $20 per hour instead of $10 per hour. Wouldn’t it basically eliminate poverty, give everyone a tremendous incentive to move into the labor force, and virtually compel businesses to be more efficient?

Even the most ardent supporters of the minimum wage would acknowledge that such an increase would cause unemployment as workers who are unproductive or unskilled were priced out of the labor market. So how do we know what the optimum minimum wage should be? The only answer is that it is up to government economists and bureaucrats to find the happy medium between subsistence living and unemployment. But what is that but Soviet-style central planning?

At issue is the proper role of government. Since when is it the job of government to encourage efficiency, automation, and technological development? Since when is it the job of government to increase the work ethic, encourage people to work, and direct workers’ job training? Since when is it the job of government to provide welfare and stimulate the economy? And since when is it the job of government to combat poverty and income inequality?

Because government intervention is the antithesis of freedom, the other side of the coin is that the minimum wage is an assault on freedom. Establishing a minimum wage is nothing but forbidding workers from freely contracting with firms under mutually agreeable terms. What is so nonsensical about the minimum wage is that it prevents people from selling their labor for whatever amount they choose even while they are able to sell any of their goods for whatever amount they choose. But just as government should have no control overbuyer/sellerrelations, so government should have no control overemployer/employeerelations. Not in a free society.

No, it is not time to raise the minimum wage. But it is long past time to have freedom of contract in labor markets.

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