America Needs a Raise: The Case for a Higher Minimum Wage

An economy that relies overwhelmingly on consumer spending can't afford to watch vast numbers of hard working citizens experience ever-diminishing purchasing power

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(Reuters)

Legions of people work every day in America caring for children and the elderly, ensuring the security of public and commercial buildings, preparing and serving food in schools, restaurants and nursing homes, ringing up customer purchases, cleaning office buildings, hotels and homes, beautifying gardens, parks and lawns and more. These jobs, while essential, pay little.

Close to 60% of all jobs created since the bottom of the recession--and most of the jobs projected to be created in the next decade--are low-wage occupations like these. Workers often rely on food stamps, the earned income tax credit and other means-tested programs -- often threatened to be cut -- not because they don't work hard enough but because their earnings are pitifully low. And while these workers strive to save, it is plainly impossible for them to save enough to finance their retirement, or manage the ever-escalating cost of college for themselves or their children.

They need a raise.

Almost four million Americans earn wages at or below the federal minimum wage of $7.25 an hour, or nearly $15,000 a year if they work full-time. That is approximately $8,000 shy of the poverty threshold for a family of four. And given that more than half of workers earning the minimum wage or less are 25 or older, it is clear that many of these workers are trying to support a family on these extremely low wages. Contrary to widely held perceptions, most minimum-wage jobs are not held by young people who get better jobs as they age. Raising the minimum wage by just 85 cents a year for three years, plus indexing it to inflation, would directly lead to higher earnings for an estimated 20 million working Americans, with another 10 million likely receiving raises as employers' pay scales adjust. And more than one quarter of the nation's children would see a parent's earnings increase.

Some argue that if only workers were more productive and more skilled, their earnings would go up. But our workforce is considerably more productive and skilled than it was 40 years ago with little gain in middle- or lower-income wages to show for it. Prior to the 1970s, worker compensation and productivity grew at about the same pace, but over the past three decades, compensation growth has been far slower than worker productivity growth. Hard work and productivity had added far more profit to owners than it has created wage growth for workers. Median wages in 2011 would have been $27.87 if compensation had increased in line with worker productivity growth. Instead median wages in 2011 were $16.07.

Others argue that raising the minimum wage will kill jobs, and that any increased earnings among those with higher wages will be offset by job and income loss among those who are priced out of work. But studies comparing worker experiences in neighboring counties have shown that a higher minimum wage on one side of the border actually can have positive effects on employment. This finding is less surprising than it sounds, given that the additional spending by low-wage workers would raise demand, increasing job growth. Raising the minimum wage is a stimulus, and one with the fortunate advantage of not requiring government spending.

Another argument is that in a globally competitive economy, businesses simply can't afford to pay higher wages. But waitresses in this country aren't competing with waitresses in China; the same can be said of most other large, low-pay occupations. Compensation for most low-wage firms is local, and if the minimum wage is raised nationally, all are similarly affected. In addition, many of the largest national employers of these low-wage workers are quite profitable, by historical and relative standards. The argument that these employers would be undone by a modest increase in the minimum wage doesn't stand up.

If as a country we truly believe in the value of hard work, it is past time for work to pay meaningfully. And in an economy that relies overwhelmingly on consumer spending, we can't afford to watch vast numbers of hard working citizens experience ever diminishing purchasing power. Moreover, businesses cannot stand up to this challenge on their own. It is unreasonable to expect companies voluntarily to pay more than their competitors -- although some do. Raising the wage standard for all can help meet worker needs, provide more dignity to work, support strong families, and put more consumer dollars in the economy, benefiting everyone.

Presented by

Elliot Gerson is an executive vice president at the Aspen Institute, where he oversees its Policy and its Public Programs, including the Aspen Economic Opportunities Program, which focuses on low-wage Americans.

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