Time to raise national minimum wage again

Adjusted for inflation, the current rate is lower than it was in 1968 and offers no one a way out of poverty.

By MSNMoney partner Apr 18, 2012 12:54PM

Here's an unhappy observation about the minimum wage: Congress last increased the rate in stages in 2007, topping it out at $7.25 an hour in 2009, or $15,080 a year.


That amount, when adjusted for inflation, is actually lower than what a minimum-wage worker earned in 1968 and is too meager to offer anyone the chance to climb out of poverty, let alone afford basic goods and services.


About 10 states are now considering raising the rate, and Senator Tom Harkin, an Iowa Democrat, is proposing to increase the federal rate in three increments to $9.80 an hour in 2014. Many of the initiatives under consideration would smartly tie the minimum wage to the cost of living, meaning that those workers' wages would finally keep up with inflation.


The past recession was brutal on jobs, household wealth and economic growth. But wages were hit hard, too. Real average hourly earnings have fallen below the level of 2009. Although wages often lag job growth after a recession, the pace of income gains this time around is far slower than in previous recoveries.


It's also becoming clear that many Americans are being forced to take lower-paying jobs and that a low-wage bias is creeping into the economy, as Bloomberg economist Joseph Brusuelas recently put it. In many cases, minimum-wage work is all that's available, which may explain why such workers are older and better-educated than they were three decades ago. In 2010, nearly 44 percent of minimum-wage workers had either attended or graduated from college, up from 25.2 percent in 1979, according to the Center for Economic and Policy Research, a liberal think tank.


Raising the minimum wage won't entirely solve the problem of anemic incomes, but it would help. Economists have long found that boosting the minimum wage can raise income levels for those earning just above the minimum. Employers, seeking to protect "wage ladders," often bump up salaries for slightly higher- paid employees, too.


This is one of many reasons that critics, including business groups like the U.S. Chamber of Commerce, the National Restaurant Association and many Republicans, oppose minimum-wage increases. The argument is that it will hurt the very people it was meant to help by forcing employers to cut jobs, raise prices or both. They point to studies that minimum-wage increases hurt teenagers, because young workers typically get minimum-wage jobs, which become scarce when employers are forced to raise salaries.


But a wave of new economic research is disproving those arguments about job losses and youth employment. Previous studies tended not to control for regional economic trends that were already affecting employment levels, such as a manufacturing-dependent state that was shedding jobs. The new research looks at micro-level employment patterns for a more accurate employment picture.


The studies find minimum-wage increases even provide an economic boost, albeit a small one, as strapped workers immediately spend their raises. A 2011 paper by economists at the Federal Reserve Bank of Chicago found that a $1 minimum-wage increase lifts household income by about $250 and increases spending by about $700 a quarter in the following year. The spending increase is driven by a small number of households that primarily buy vehicles.


A team of economists, led by Arindrajit Dube of the University of Massachusetts-Amherst, compared employment levels in contiguous areas with disparate minimum-wage levels over a 16-year period and concluded in a 2010 paper there are "strong earnings effects and no employment effects of minimum wage increases."


The federal minimum wage was always meant to be a floor, not a ceiling. Today, someone earning the minimum would have to work 749 hours to afford one year of health insurance premiums and 923 hours to afford a year's tuition at a public four-year college.


Although this math may not be persuasive in Congress, it does seem to be influencing legislatures across the country. Let us hope that states lead the way on the minimum wage, and that they tie increases to the cost of living, making endless rounds of legislation unnecessary. Then let us hope that fresh research and improved lives built on hard work compel Congress to follow.

More from Bloomberg

Apr 18, 2012 4:42PM
What happens when the government gets involved in prices and wages?

Markets become distorted.

Here's an idea: Instead of trying to raise the minimum wage set by the federal government in order to keep up with inflation, why not just stop inflating the currency? 
Apr 19, 2012 2:23PM

You accept min. wage job, work your b(^tt off for 3-4 years on that salary, get a 1% increase, then they lay you off because they say they can't afford to pay you that much.   The CEO makes millions and has no idea how the company works, runs the company into bankruptcy and walks away with a 7 digit 'retirement' package.

Welcome home.

Apr 22, 2012 8:53AM
Need to stop paying CEO's millions and pay the people who are doing the work!!!!!!!!! Amazed it took this long to realize it 7.25 an hour is joke!
Apr 19, 2012 9:24AM
If we can get closer to third world wages we can compete. Then jobs will come back to the USA. Then we can live in refrigerator boxes like the rest of the world. Some where I heard "the rich are getting richer and the poor are getting poorer". Ya think?
Apr 23, 2012 6:12AM

The minimum wage in this country is a complete joke!!!!!!  Try living on twice that amount, and see what kind of life you can afford for yourself.  and if you have a family, forget it.


If you want to get the economy moving, pay people a decent wage so they have some purchasing power again, and do something about the illegal immigrants that have ruined the wage structure for the service and construction industry in America.  There isn't a shortage of home buyers out there, there's a shortage of income for the legal Americans that built this nation. 


Trickle down economics is a catastrophic failure!!!  That failure is why people want the government to regulate business, because greed won't allow businesses to do the right thing.

Apr 18, 2012 3:02PM
In 2010, nearly 44 percent of minimum-wage workers had either attended or graduated from college, up from 25.2 percent in 1979

That just goes to show that a college education isn't what it used to be. Just like when making it through high school wasn't enough. It's what you learn that counts. Do you create value for an employer.

This is the same justification used for the recent wage hike, a 40% bump at that. Now here we are again talking about inflation and cost of living outpacing wages. You can make the argument that the min. wage increase worsened the recession and inflated prices. All these cited independent studies are useless. You can find any study to back any position you want.
Apr 22, 2012 10:51AM
How about sound economic principles that keep inflation low? If the Fed keeps pumping fake money into the system, minimum wage will have to be $20.00 an hour to keep up with the coming inflation.
Apr 21, 2012 10:31AM
If the government let corporations completely control wages, ( i.e. NO minimum wage, No unions) we would all be surfs working in the fields and sweat shops barely making enough to feed ourselves and maintain a one room shack.
Apr 22, 2012 9:33PM
It doesn't matter if it's raised or not. It's all economic smoke and mirrors. If the minimum wage goes up, the price of consumer goods goes up, the costs are absorbed by the consumers, the rich get richer, the poor "move up" towards the middle class, i.e., the middle class pulls farther away from the rich, and the gap widens. That's about worst case. At best, nothing changes, and a whole lot of people get bent out of shape. To oversimplify, minimum wage "needs" to increase to catch up to healthcare and fuel costs, so they can jack up the price on those items again. Rinse, and repeat.
Apr 23, 2012 7:14AM

Minimum wage should be 10/hr. Period. Starting next year.

Also, There should be a 'Maximum wage' set as well. No one should make more than 20 times their lowest paid employee. This means that when the part time stockboy makes 10/hr. the CEO cannot make more than 200/hr.


That would go a long way towards fixing the country.


PS: corporations cannot also freeze hireing, or drop peoples' hours when the minimum wage is raised. And, CEO's cannot say they work more than 12 hours a day.

Apr 23, 2012 8:27AM
Minimum wage should be what it costs to live 40 hours pay = rent+food+electricity+heat+clothing+transportation and any other necessities. Nobody works harder than a minimum wage worker when i was young i worked these jobs and people who pay like crap treat you like crap and expect hard and constant labor and my coworkers and i worked hard because we needed the money but i see now that the higher up the pay scale you go the lazier the people get right up to the top. the ceo works for 2 hours then 3 hours for lunch back for 1 hour of work then golf in the afternoon. and that same ceo lobbies washington to keep minimum wages low. The right is always saying that ceo's millions are justified. Well doesn't a full time job doing even the most menial labor deserve a living wage?
Apr 23, 2012 9:07AM

It's nothing but a vicious circle.  First the Goverment raises the minimum wage then the small business owner raises his prices to keep his profits the same, then bis business does the same and Unions want their share.  Then since the wages have all gone up so much the manufactures want more money for their products.  A large part of price increases is due to transportation costs to deliver the products to the point of sale and you know what fuel costs do. The law of supply and demand.

After everyone has raised their prices and people begin to feel the pinch they start clamoring for higher pay so they can cope.

Then the cycle begins again. 

Apr 21, 2012 8:08PM

Got to love how you turn a 25% increase in the minimum wage into a four fold cost in the price of fast food. Seeing that labor is about 15% of the cost of running a subway, so a 25% increase in the minimum wage will increase the cost of your $5.00 sub by a quarter. take into account that the extra $2.50 in that works pocket will be spent right away, maybe even creating more jobs for others. And its best to stay away from Mcdonalds in the first place you will live longer!







Apr 23, 2012 3:18AM

United Parcel Service starting wage is still 8.50 stuck at 8.00 range now for almost 35 years. Sick


Apr 22, 2012 10:54AM
All this will do is increase illegal hiring.
Apr 23, 2012 9:33AM
Skip raising min wage. Get rid of half of the fed gov employees sitting around on their tails doing nothing. Then the savings can be used to help the truely needy, also require drug testing for welfare payments. Add to that, anyone who gets a job and gets off welfare will get a check for the difference in what they get from the government now and what they get from their new job. This will encourge people to look for work and employers to start to look at highering again.
Apr 23, 2012 7:49AM
Nobody REALLY cares about whether folks can make a living at the minimum. Just look at the factory owners who drive expensive cars and wear expensive suits, laughing at the country club about how they are making so much money while their workers (who actually earn the money) are paid as little as they can get away with. Maybe they should try to live on 15,000/yr.
Apr 23, 2012 6:18AM
So if wages go up the price of goods go up  and the more you pay in taxes  of those goods go up. In the end people start to realize that the only one that made out on the minium wage increase are the bastards in Washington.
Apr 23, 2012 8:39AM

Brilliant Idea.  As the legislators who know nothing about running a business, or economics, whom, just before election time attempt another shameless attempt to buy votes from the dumb masses, who have no idea they’re being screwed by the very people who claim to be helping them, stand on the front steps of the crapitol and beat their chests declaring, for all to hear:


"Look what WE have done for you, the Great Unwashed.  WE have raised, by force, the amount that business who are already strapped in this recession that we created, the Minimum Wage that you are to be paid.  But we cannot tell you how we intend to enforce that wage in China, or India, or Mexico." (The places where we’ve driven your middle class manufacturing jobs because we taxed and regulated your former employers right off our shores.)


And the saddest part is that those same dumb masses, who were educated in government schools, will never be able to make the connection between the More that government gets involved the worse their day to day existence becomes.  Yes, another brilliant idea from our o’pressors in DC.


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