Decades of research have been devoted to the question of whether minimum wage hikes lead to job loss—the leading argument made against this century-old labor standard. Despite the accumulating evidence pointing to the conclusion that minimum wages do not adversely affect employment (see this nice summary by John Schmitt) this same debate seems to be recycled, nearly verbatim, each time a minimum wage hike is on the table. To put an end to this perennial debate one simple fact has to be pounded into the American psyche:
The dire warnings that the minimum wage hikes impose unbearably high costs on businesses are false. Costs to businesses from an average minimum wage hike are small—so small that the typical business can adjust by means other than closing their doors or laying off workers.
At the start of 2013, ten states raised their minimum wage rates: Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont, and Washington. These ten states did so because each has a law requiring that it maintain the purchasing power of the state wage floor with an annual inflation adjustment, also called a “cost-of-living adjustment (COLA)” or “inflation-indexing.”
This flurry of activity sparked, yet again, a political fight over the merits of this century-old labor standard. One issue that comes up is whether minimum wage hikes will trigger inflation, i.e., cause an overall rise in prices.
Media attention is finally focusing on the fact that low-wage work constitutes a major share of the jobs produced by the U.S. economy (for example, see this NYT article by Catherine Rampell, this NYT Op-Ed by Peter Edelmen, and this Huffington Post article by Dan Froomkin).
Politicians seem to universally prescribe the same remedy for low-wage workers’ economic hardships: to raise their living standards, they need better skills, more education.
Take for example, Obama’s speech at the Democratic National Convention in September 2012. In the same speech that President Obama poked fun at Republicans for having a knee-jerk “tax cut” cure all for what ails the U.S. economy, he offered up an even more ubiquitous bipartisan prescription of “get more skills” for all that ails U.S. workers: “You can choose a future where more Americans have the chance to gain the skills they need to compete, no matter how old they are or how much money they have. Education was the gateway to opportunity for me. It was the gateway for Michelle. And now more than ever, it is the gateway to a middle-class life.”
This past July marked the 3rd anniversary of the last federal minimum wage hike. This matters because each year the minimum wage does not go up, its inflation-adjusted value (i.e., its real purchasing power) goes down. The minimum wage last increased in 2009 to $7.25. Since then inflation has reduced its real value by 6 percent. More dramatic is how the federal minimum has lost about 40 percent of its real value since its peak in 1968 (just over $10.00 in today’s dollars). California Representative George Miller and Iowa Senator Tom Harkin have each proposed a bill to make up some of this lost ground by raising the federal minimum in three steps to $9.80 by 2015.
Jeannette Wicks-Lim is Assistant Research Professor at the Political Economy Research Institute, University of Massachusetts, Amherst. Her research areas include conditions for low-wage workers in the United States and policies to promote equality and poverty reduction through employment-based measures. Jeannette is co-author of A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States (2008), and co-editor of Capitalism on Trial: Explorations in the Tradition of Thomas E. Weisskopf (forthcoming). Jeannette also writes a regular column for Dollars & Sense.