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Editorial: The falling minimum wage

BY DI EDITORIAL BOARD | FEBRUARY 12, 2014 5:00 AM

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Iowa House Democrats introduced a bill last month that would raise the state’s minimum wage to $10.10 by 2016. The proposal closely resembles a national plan favored by many congressional Democrats, including Sen. Tom Harkin, D-Iowa, that would raise the federal rate from to $7.25 to $10.10 per hour.

The debate surrounding the proposal at every level has largely devolved into a statistical food fight. Some say raising the minimum wage would cause inflation, slow hiring, and disadvantage small businesses; others say it would increase aggregate demand, lead to economic growth, and maybe even reduce income inequality. The countervailing studies cited on all sides paint a muddy picture of the actual consequences of raising the minimum wage.

We obviously are in no position to untangle or declare a winner in one of the trickiest economic controversies of the day. We do recognize, however, that while specific outcomes vary, a higher minimum wage has hardly been apocalyptic in the 21 states that have a minimum wage higher than the federal rate. In states such as Oregon and Washington, where the minimum wage is high, economic growth has been among the strongest in the nation, and there’s no sign that employers are migrating to states with a lower minimum wage.

But we can leave questions of economics aside because the dynamic that animates much of the popular debate isn’t about time-series data or intellectual rigor at all. It’s far simpler: How much do low-skill workers deserve to be paid? Should the guiding principle of our policymaking be efficiency or common decency?

We believe that the minimum wage should be raised as a matter of fairness.

Those who say that the minimum wage should not be raised often argue that because low-skill workers are easily replaceable, it would be inefficient to make employers pay more for their labor.

In other words, the market value of low-skill labor isn’t rising, so their wages shouldn’t rise, either.

It’s a tempting laissez-faire idea, but it’s not based on an accurate view of how low-skill work has changed. Consider that the real value of the minimum wage has actually fallen over the past few decades because it isn’t indexed to inflation. Consider also that over the same period, worker productivity rose dramatically. From 1973 to 2011, worker productivity in the United States grew by 80 percent, while hourly wages barely budged.

Workers are getting more done, corporate profits are growing, but wages have stagnated. The benefits of increased output haven’t been passed along through higher wages, a phenomenon tied directly to growing inequality. Increasing the minimum wage would be a step — a small one — toward reversing that corrosive trend.

Despite the clear upward trend in productivity and downward trend in real wages, the argument that the minimum wage need not be raised is necessarily based on the assumption that low-wage workers are somehow still compensated fairly today.

That assumption is, of course, flawed. The wages of low-income workers are set by employers with an interest in keeping costs (read: wages) low. The relationship between labor and employers has been marked historically by exploitation in which the government or labor unions have failed to intervene on behalf of workers.

This problem might not be so bad if the low-skill labor market were more efficient. Traditional ideas of competition and market forces don’t apply here because so many low-wage workers have very little ability to quit their job and shop around for a better offer if they feel they are being paid unfairly for their work.

Because the conditions are ripe for exploitation, we have is a collective moral responsibility to set the pay floor to protect workers from exploitative wages and to periodically raise it to reflect inflation and changes in output.

At $7.25 per hour, the current federal and statewide rate is exploitative. Any one of the roughly 3.6 million people working at this rate, no matter who they are (mostly young adults in leisure and hospitality jobs), could not reasonably make ends meet.

But the employers of low-skill, low-wage workers aren’t merely exploiting their workers. They’re exploiting the taxpayers as well. A 2013 report from the University of California-Berkeley’s Labor Center and the University of Illinois-Urbana/Champaign found that fast-food workers receive about $7 billion per year in public assistance. Taxpayers are effectively subsidizing low wages.

Clearly, the low minimum wage is unsustainably low on an individual and a systemic level, and failing to raise it is effectively the same as letting it fall even farther.

More than anything — more than economics, more than a flurry of noisy statistics — the debate is about what we value more: corporate efficiency or fairness. We err on the side of the latter.


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