June 16, 2013

Working for peanuts

Despite decades of recycled falsehoods, raising the minimum wage to $9 an hour would help Maine's economy and its low-income workers.

By SUSAN FEINER

Summertime and the living is easy. Except when it isn't. Which is pretty much always for minimum wage workers.

click image to enlarge

Staff Photo Illustration/Michael Fisher

Working 40 hours per week at $7.50 per hour, Maine's minimum wage, generates weekly gross income of $300. Put in 52 full-time weeks (Paid vacation? You're joking, right?) and you'll earn $15,600 per year. Before taxes.

Subtract the state taxes paid by Mainers in the bottom 20 percent of earners and the annual disposable income for full-time/full-year minimum wage workers falls to $14,100. That's more than $400 per year below the national poverty line for a family of two ($14,570).

A recent Gallup poll found that 71 percent of Americans (including 50 percent of Republicans) back President Obama's proposal to increase the minimum wage to $9 an hour.

It's not surprising that the Republican leadership has nothing good to say about the idea. They have nothing new to say either. They just keep recycling the yarn that a higher minimum wage will wipe out thousands of jobs, leaving the folks earning the least worse off than they were.

These arguments are as wrong as they are repetitious.

Reuben Haslam, testifying to Congress in 1945 for the National Association of Manufacturers said, "(T)he proposed jump from an hourly minimum of 40 to 50 cents at once and to 70 and 75 cents in the following years is a reckless jolt to the economic system. Living standards, instead of being improved, would probably fall -- probably to record lows."

Everyone feared a return to the economic wasteland of the Great Depression. With millions about to be demobilized following World War II, minimum wage opponents said the increase couldn't come at a worse time.

Congress ignored that self-interested advice and raised the minimum wage to the bankrupting level of 75 cents per hour.

Guess what happened? The economy grew.

In 1955, the U.S. Chamber of Commerce told The New York Times, "Imposition of a $1 minimum wage, with more than double the impact of a 90 cent minimum wage, could have substantial unemployment effects."

Nope. In June 1955, unemployment was 4.2 percent. And that's where it stayed through 1957.

By 1980, the purchasing power of the minimum wage had fallen nearly 10 percent from its inflation-adjusted 1968 peak. Perhaps that's why then-presidential candidate Ronald Reagan told Time magazine that, "The minimum wage has caused more misery and unemployment than anything since the Great Depression."

Talk about a broken record. Scour the anti-minimum wage record as closely as you can and you'll not find anything new.

These arguments against the minimum wage are as off-base, incorrect and misguided today as they were in 1938 -- 75 years ago -- when it was enacted. (Thanks to the work of Maine's own Frances Perkins, President Franklin D. Roosevelt's secretary of labor and the first woman to hold a Cabinet position. She was directly responsible for key New Deal labor reforms like the minimum wage, social security and unemployment insurance).

You don't have to take my word on this. After all, I'm just another chick with an economics Ph.D. What do I know?

The minimum wage has been studied, studied and studied again. A February 2013 paper released by the Center for Economic and Policy Research, "Why Does the Minimum Wage Have No Discernable Effect on Employment" summarizes decades of research. The bumper sticker version: Does raising the minimum wage increase the incomes of workers at or near the minimum wage? Yes. Does the minimum wage cause job losses? No.

Since early April, Maine workers have anxiously awaited the fate of L.D. 611, which passed in the state Senate but now languishes in appropriations. This bill, like similar bills in other states, calls for raising the minimum wage to $9 per hour (by 2016) and then indexing it to inflation.

Don't fall prey to the mistaken idea that a $9 hour minimum wage is "too high."

The minimum wage reached its (inflation-adjusted) peak in 1968, when it rose from $1.40 per hour to $1.60 per hour. Today's minimum wage would have to be $10.69 to have the purchasing power it had then.

Folks, if enacted into law, L.D. 611 wouldn't even put today's low wage workers at the level enjoyed when minimum wage workers watched the debut seasons of "Mayberry, R.F.D.," "The Mod Squad" and "Star Trek."

Here's another way to think about the minimum wage: At its 1968 peak, a full-time full-year minimum wage worker brought home 53 percent (essentially half) of the average production worker's wages. Today, working full-time/full-year only gets minimum wage workers to 37 percent of the average. The poor do get poorer.

For three decades, the purchasing power of the minimum wage moved in tandem with increases in labor's productivity (i.e., the output per hour of nonfarm employees). As a result, all wages increased as output per hour rose.

Consider these linkages: Each hour of work yields more output; more output for the same labor time input means that costs per unit fall; as costs per unit fall, profits rise.

Increasing the minimum wage rewarded enhanced efficiency by making sure that some portion of the productivity gains -- most of which flow from workers' improved performance -- remain in the hands of the people who do the work.

Sure, there's a fairness component to this argument. There is, however, an equally compelling pro-growth piece.

If wages don't keep up with productivity, then more and more of the stuff produced has to be sold to someone else. If workers can't buy the things they produce, stuff piles up in warehouses and languishes on stockroom shelves. Unsold inventories don't generate profits. Firms don't like that. So they run deep sales, spend more on advertising and try to increase exports.

But they also cut jobs. By cutting jobs (creating unemployment), firms stop creating new output they can't sell. After all, what rational firm keeps producing new stuff when it can't sell the stuff produced last week?

Conventional economic logic is upside down! Failing to increase the minimum wage causes joblessness. Raising the minimum wage creates jobs.

Despite the evidence, bosses and their shills insist that today's low wage workers shouldn't benefit from the gargantuan improvements in labor's productivity that have occurred since Woodstock rocked and Neil Armstrong walked on the moon.

If the minimum wage had kept pace with labor's productivity, it would have to be -- wait for it -- $21.72 per hour.

Don't call 911 just yet. Have a sip of water. And remember, breathe.

Susan Feiner is a professor of economics and women and gender studies at the University of Southern Maine.

 

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