Wage Reform: From the Bottom Up

By The New York Times | Editorial

18 February 13

resident Obama was right about the need to increase the federal minimum wage, but it was too bad that he pulled his punches in calling on Congress to lift the wage only to $9 an hour by the end of 2015, from $7.25 an hour, where it has been since 2009.

His proposal would boost the annual pay of an employee working full time at the minimum wage from $14,500 now to $18,000, which is still very low. Several economic measures - including purchasing power, average wages and productivity gains - indicate that the minimum wage should be at least $10 an hour today, not $9 an hour three years from now. In 2008, Mr. Obama campaigned on raising the minimum wage to $9.50 an hour.

Politically, the lowball proposal is understandable. Congressional Republicans are bound to oppose any increase. Representative John Boehner, the House speaker, lashed out against the proposal the day after the president's State of the Union address, a stance that will very likely further alienate important constituencies from the Republican Party, including women, who represent more than half of the estimated 18 million people currently working at or near the minimum wage, and Hispanics, who represent one-fourth.

Combined with tax credits for the working poor, Mr. Obama's proposal could lift a minimum wage worker who is currently below the poverty line ($18,498 for a family of three in 2012) out of poverty. But the minimum wage is more than an antipoverty program. In fact, most workers at or near the minimum wage live in households with moderate family incomes above poverty levels but below the national median of roughly $60,000. For them, and for the broader economy, an adequate minimum wage can help ensure fair pay and stimulate the economy by putting more money in consumers' wallets.

Opponents of an increase in the minimum wage argue that it will harm small businesses, but that fear is exaggerated. Research shows that the extra cost is offset by lower labor turnover, small price increases or other adjustments. In addition, many low-wage workers at small businesses are tipped workers whose employers have been shielded for decades from minimum wage increases, and thus have room for an increase.

Over all, the argument that a higher wage will kill jobs has been debunked by a range of studies showing that a higher minimum wage boosts pay without measurably reducing employment, while improving productivity. One study from the Federal Reserve Bank of Chicago found that a $1 increase in the minimum wage results, on average, in $2,800 in new spending by affected households in the following year, in large part because the increase helps workers accumulate down payments to buy cars. Owning a car, in turn, helps workers to keep their jobs.

On Wednesday, Congressional Democrats said they would introduce bills to gradually raise the wage to $10.10 an hour. Both Mr. Obama and Democratic lawmakers have also called for annual inflation adjustments, an important change that would be made better by adjusting the minimum wage to keep it in line with increases in average wages, rather than with consumer prices. A higher minimum wage would be good for workers and for the economy. The challenge is to get it through Congress.