COLUMN: The minimum wage, the tortoise, and the hares

published Tuesday, July 31, 2007

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The federal minimum wage increases from $5.15 an hour to $5.85 on Tuesday. One year later it will increase to $6.55 and another year later, on July 24, 2009, it will increase to $7.25.

Since about 1980, the federal government has adopted a tortoise's pace in increasing the minimum wage, and increases in the minimum wage have failed to keep pace either with inflation or with growth in average wages. However, there is a hare — rather hares — in this race too, with interesting lessons emerging.

The last time the federal minimum wage increased was September 1, 1997 — just one month shy of 10 years ago, the longest stretch of time without a minimum wage increase since the minimum wage was created in 1938. The only other time the minimum wage has remained unchanged for more than nine years was from January 1981 to April 1990, nine years and three months.

In contrast, over the 33 years from 1947 to 1980, the minimum wage increased 17 times, or about every two years on average.

Efforts to increase the federal minimum wage face incredible resistance, and increases have become few and far between. At the same time, the value of the minimum wage has eroded badly. Expressed in constant 2006 dollars (that is, after adjusting for inflation), the value of the minimum wage reached a peak of $7.73 in 1968. Since then it has declined in value by more than one third, to its current level of $5.15. Today, full-time work at the minimum wage leaves one deep in poverty, especially if one is raising a family.

You might be thinking, "But only teenagers working after-school jobs make the minimum wage." This is not true. According to the Economic Policy Institute, characteristics of workers currently making less than $7.25 an hour, workers who will benefit directly from increasing the minimum wage to $7.25, include the following: 79 percent are adults age 20 and older, 53 percent work full time, 26 percent are parents and 10 percent are single parents.
So, what is the status of the minimum wage today in terms of our work ethic and our commitment to rewarding hard work — and minimum wage work is hard work, often tedious and tiring — with a fair wage? Public opinion polls consistently find that a large majority believes that someone who works full time and year round should not have to live in poverty. Yet the federal minimum wage has eroded so badly.

Enter the hare, or rather hares. The federal government has been behaving like a tortoise, crawling along and stopping for long naps. Many states, however, have been going their own way, enacting their own minimum wages and bounding ahead.

Today, 29 states — more than half — have enacted a state minimum wage that is higher than the federal minimum wage. Washington leads the way, where the state minimum wage is currently $7.93. Oregon is not far behind at $7.80.

In addition, more and more states are indexing their minimum wage to inflation, so that it increases each year with the cost of living. Currently, 10 states have a state minimum wage that is adjusted annually for inflation.
Interesting evidence emerging from these experiments in the states may at last put to rest two pervasive fears about the minimum wage. First is the myth that increasing the minimum wage results in job losses. Second is the fear that raising the minimum wage hurts small businesses.

Several studies have found that modest increases in the minimum wage lead to no measurable effect on employment. WSU economist Dave Holland, who has studied the impact of Washington's minimum wage, says job loss is minimal when all employers are forced to pay higher wages.

The second finding, that small businesses are not hurt and even prosper when the minimum wage goes up, also is a pleasant surprise. According to a January 2007 New York Times article, small-business owners in Washington have found that they can raise their prices and pass the wage increase through, without hurting profits. In addition, many small businesses benefit from having a clientele with more purchasing power.

The minimum wage is alive and kicking in the states. And now on Tuesday, the tortoise is going to wake up and attempt to narrow the gap between it and the hares.

Judith L. Brown is an economist and director of the Idaho Center on Budget and Tax Policy. She lives in Moscow with her family and can be reached at jlbrown@turbonet.com.