Minimum wage should be raised


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President Obama’s proposal, in last week’s State of the Union Address, to raise the national minimum wage to $9 per hour and allow it to grow along with inflation has rekindled the national debate about how the country’s low-income workers should be compensated.

One of the country’s strongest advocates for a higher minimum wage is Sen. Tom Harkin, D-Iowa, who introduced a bill last summer that would have raised the national minimum wage from $7.25 per hour to $9.80 per hour over a period of two years. Harkin’s bill, which ultimately died in committee, also would have allowed the minimum wage to rise along with inflation.

Harkin praised the economic President Obama presented in the State of the Union.

“The president’s agenda is aimed at restoring the promise of the American middle class,” Harkin said in a press release. “If you work hard and play by the rules, you will be able to earn a fair wage.”

We believe that Obama and Harkin are correct in their advocacy for a higher minimum wage. We understand that the economics surrounding minimum-wage laws are controversial, but we believe there is sufficient evidence to suggest that such laws can make a net-positive contribution in the fight against poverty and inequality.

Not everyone in Iowa supports raising the minimum wage, of course. Last year, the Republican-controlled Iowa House killed a bill to raise Iowa’s minimum wage from $7.25 per hour to $10 per hour. A great deal of concern about the bill — in Iowa City particularly — came from small-business owners who believed that a higher minimum wage would be a financial burden that would lead to fewer low-skill jobs.

This point of view is certainly in line with the conventional economic wisdom about minimum-wage laws. A higher minimum wage, the argument goes, increases the price of labor, forces businesses to limit hiring, and leaves some low-skill workers better off at the expense of many others who can no longer find work.

This line of thinking also posits that young people — teenagers and college-age workers — are those most adversely affected by higher minimum wages.

A relatively modern wave of economists has challenged that point of view. The shift away from the conventional wisdom began with a landmark study by David Card and Alan Krueger that examined the effect of a 1992 law that raised New Jersey’s minimum wage by 80 cents.

Card and Krueger examined a set of restaurants in New Jersey and Pennsylvania (where the minimum wage was not changed) and found that after the minimum wage increased in New Jersey, hiring rose 10 percent, while hiring fell in Pennsylvania. Furthermore, most of the hiring growth in New Jersey occurred in restaurants that paid their workers the minimum wage.

Modest raises to the minimum wage seem not to have dramatic adverse effects on hiring. That is not to say, however, that the minimum wage should be raised ad infinitum. Certainly a threshold exists beyond which the minimum wage becomes prohibitively burdensome for employers, but there’s not much reason to believe that we’re close to that threshold.

Adjusted for inflation, the current national minimum wage (it was raised from $5.15 to $7.25 per hour in 2007 and is not indexed to rise with inflation) is far below historical highs. In the late 1960s, a time of very low unemployment, the minimum wage was more than $10 per hour in today’s terms.

Since that time, as Larry Bartels notes in his book Unequal Democracy, the real value of the minimum wage has fallen dramatically, while the real average hourly pay for Americans as a whole has gone up by more than 50 percent. Bartels cites this “erosion” of the minimum wage as one of the key drivers of income inequality in the United States.

We support Obama’s initiative to raise the minimum wage; such a move would put more Americans on a path toward a living wage and help to correct the inequality rampant in our economy.

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