Increasing the
Minimum Wage:
The Right Thing to Do,
Good Economics
by Stephen Herzenberg, Director, Keystone Research Center
Highlights from Dr. Herzenberg’s Lutheran Day presentation:
The Executive and Legislative branches of PA government are debating an increase
in the minimum wage, which is currently at $5.15. Some leaders favor a raise to
$6.15 while others have set their sights on $7.15. The House of Representatives
has voted out a bill that would raise the minimum wage to $7.15 through two
steps during the next year. The Senate has not voted on a bill at the current
time.
According to the research of the Keystone Research Center (KRC), a raise to $7.15 would benefit 427,000 people directly. The ripple effect (raising other salaries due to a raise in the lower salaries) would effect an additional 320,000 individuals.
Seventy percent of the persons benefited will be over
20 years of age, countering the argument that the benefit would go to teenagers
(“glorified allowance bump”) who do not support families. According to the
Center’s studies, the lowest-income 20% in the Commonwealth would receive nearly
a third of the benefits.
The distribution of increase in wages has not been equal since 1979. The chart, below, shows that the increase in high-wage earners outstrips the increase for either minimum or low-wage earners.
Some economists support the theory that low-wage
earners are always on a growth path in their income. They start at a low
wage and then advance within a year or two. The data does not support
that theory. Over the years, the low-wage earners experienced a growth
in income only following a change in the minimum wage. Otherwise, they
were on a treadmill. See chart below:
In PA, of 670,000 earning less than the poverty level in 1998 and still working in PA in 2004, 261,000 (nearly 40 %) are still below the poverty level. Nationally, 24% of the wage earners at minimum wage in 1997 were not employed three years later.
The next chart below shows that the productivity of wage earners has increased
dramatically since 1947; whereas, the value of the minimum wage has dropped. The
equity that is desired for our fellow workers is not there.
Higher minimum wage has several potential impacts on employment: higher consumer demand, lower turnover/fewer vacancies, as well as higher costs. This leads some to fear that PA will experience job losses. The opposite is seen in the empirical evidence. The experience in other states finds no significant job loss from higher minimum wage. All of the states surrounding Pennsylvania have increased their minimum wage and are now in competition for PA workers.
Review of historical U.S. experience shows that the lowest unemployment rate is
during the period of highest minimum wage increases.
Markets are embedded in society. Rules and institutions are needed that make the
market serve, and not undercut, our values. A higher minimum wage is needed to
get to a moral economy.
ő Find more information about minimum wage on the Keystone Research Center website: www.keystoneresearch.org.