It wouldn't be the holidays if we didn't have grinches. In the spirit of the season, this week we saw calls to lower the federal minimum wage (yes, you read that correctly), thinly disguised as a way to help the economy. In this time of recession and high unemployment, however, that is actually the last thing policymakers should do.
The federal minimum wage is just $7.25 an hour, or $14,500 a year for a full-time worker. And for tipped workers, like the waitresses, car wash attendants and nail salon workers, it is a shockingly low $2.13 an hour (while tips are expected to bring workers up to a more sustainable level, often they do not). Calls to lower this already meager wage get the economics of the minimum wage completely wrong by ignoring the importance of a decent wage floor, especially in this recession.
Families are relying more than ever on low-wage and minimum wage jobs to support themselves. Job losses have hit higher-wage occupations, like construction and manufacturing, substantially more than low-wage sectors like health care - which actually grew over the past year - and restaurants, where job growth is already rebounding. For many of these low-wage sectors, the minimum wage effectively sets the pay scales. Barely getting by on that salary, it's hard to envision how families could survive on even less - something critics of the minimum wage don't even try to do.
What critics do do - in both good economic times and bad - is offer the usual bromide that the minimum wage is a "job-killer." In reality, though, the most careful studies of state and federal minimum wage increases have found little evidence of job loss. For example, states that raised their minimum wages higher than the federal level between 1997 and 2007 (when the federal minimum wage was stuck at $5.15 an hour) enjoyed lower unemployment rates than states that did not. When Congress finally raised the minimum wage in 2007, the move was endorsed by more than 650 economists, including five Nobel laureates and six past presidents of the American Economics Association, who argued that the increase would significantly improve the lives of low-wage workers "without the adverse effects critics have claimed."
Minimum wage critics like to focus on teenagers (ignoring the fact that 76 percent of those working at or near the minimum wage are adults). They argue that the spike in teen unemployment we are currently seeing was caused by the modest minimum wage boost that took place last summer, and is reason for rolling it back. But as a recent Economic Policy Institute analysis shows, teen unemployment rises faster than adult joblessness during every recession - whether or not the minimum wage goes up. Teens are the last hired, and so are always the first fired when the economy shrinks and adults compete with them for scarce jobs. Moreover, the federal minimum wage law already allows employers to pay teenagers a special sub-minimum wage of just $4.25 - $3.00 less than the full minimum - for the first ninety days of employment. The fact that few take advantage of this option underscores that the minimum has nothing to do with why teens are now out of work.
In fact, if we want to restore economic growth, and ultimately jobs, we need to be raising the minimum wage, not cutting it. The spectacular failure of mortgage refinancing and credit card debt to sustain consumer spending over the past decade is a reminder that good jobs at good wages are vital for grounding our economy and driving consumer demand. A strong minimum wage is a cornerstone of that strategy, and raising it is one of the most effective ways to further stimulate the economy, without adding to the deficit. It puts money in the pockets of low-income families who will spend it immediately - because they have to - on basic necessities in their local communities. A recent study by the Federal Reserve Bank of Chicago confirmed that minimum wage increases boost consumer spending substantially more than tax cuts do. The Economic Policy Institute estimates that last summer's modest minimum wage increase from $6.55 to $7.25 an hour generated $5.5 billion in new consumer spending.
By exploiting the current economic climate to argue against a strong minimum wage, critics are being unoriginal at best, and disingenuous at worst. The idea that our low minimum wage has played any meaningful role in the global recession and unemployment crisis - as opposed, say, to the bursting housing bubble, lax financial regulation, and the resulting collapse in business investment and consumer demand - cannot be taken seriously. It would be cruel and unwise to gut a vital protection for low-wage workers that has helped stimulate purchasing power and cushioned working families since the Great Depression. Thankfully, in the end, the Grinch never wins.