08/01/2008 05:12 am ET Updated May 25, 2011

The Minimum Wage: A Disgrace and a Scandal

There will be a lot of chatter about today's hike in the minimum wage. We should be happy for the people who will get another seventy cents an hour in their gross pay. But, we should keep in mind that, at the grand new sum of $6.55 an hour, the minimum wage is a disgrace and a sad commentary about the state of our social safety net, the economy and our political system.

If you do the math, it's pretty stark. If you worked 40 hours a week, 52 weeks a year, you would earn $13,624. Not a single day off. No sick days. No health care. No pension.

The official federal poverty rate for a family of three is $17,600. Meaning, at the new rate, under the official definition, you are still poor if you are a household of just three -- not to mention if you have a bigger family--and you are willing to work every hour, every weekday, every single week -- with no break.

And that official poverty rate is really quite phony and masks the reality. Taking into account the cost of food, housing, gas, minimal clothing and the other bare minimum stuff you need to live, what's the amount you would say really keeps people out of poverty? $20,000? $25,000? $30,000? As my friend David Morris, a brilliant thinker who runs the Institute for Local Self-Reliance, reminded me, with his usual sharp sarcasm: "well, at least you're better off than a poor Nigerian".

Here are some things to ponder:

* Adjusted for inflation, the minimum wage today is what it was in the 1950s -- more than half a century ago.
* To really make ends meet at minimum wage pay, two people in a household have to work three full-time minimum wage jobs.

Now, part of the problem is that there is a compact between our government and the private sector: we accept vast poverty as a matter of economic policy. The political system accepts it. Remember when John Edwards ran for president, in large part, based on a platform that focused on poverty? People sort of laughed at him, or at the very least thought that poverty was not a winning issue. Have you heard a serious debate about poverty since he left the race?

Here is how the political and economic system has been ripping off workers. Once upon a time, if you worked hard and were productive, that translated directly into your paycheck. Not anymore. From 2000 to roughly 2007, productivity went up 20 percent -- while the median hourly wage was up 3 percent. My friend Joel Rogers,director of the Center on Wisconsin Strategy, made a stunning calculation not too long ago: Had wages tracked productivity as they have over the past 30 years, "median family income in the U.S. would be about $20,000 higher today than it is." Check this out: Taking into account productivity, the minimum wage should be $19.12 -- which would make it almost 50 percent above today's median wage (not to mention the pathetic $6.55).

That's right. The minimum wage should be more three times what it is today. At that level, you would make almost $40,000 a year. Not an outstanding amount given all the other costs and the likelihood that you would not be in a job with health care and a pension (that's another issue). But, beginning to be in the realm of respectable.

And here's the most amazing part: passing the minimum wage also cost taxpayers. To get the minimum wage hike through Congress, Democrats agreed to a whole set of tax breaks for business, worth about $8 billion over ten years. Sure, not a lot of money in the scheme of a trillion-dollar plus budget. But, since every reputable study shows that there is virtually no negative effect on business when the minimum wage goes up at the levels we are talking about (and, some studies actually show a positive effect on business in terms of keeping workers), the only reason to shower business with more taxpayer money is to keep the political campaign cash pipeline open.

Yesterday, I wrote about how the rich -- the top one percent -- are getting a larger share of the nation's income. Today, the minimum wage goes up to $6.55 an hour. The top one percent of the income earners burp and make far more in that brief moment than any minimum wage worker. According to Citizens for Tax Justice:

In 2008 the best-off one percent will have an estimated average income of almost $1.5 million each. Just to get into this elite group requires an income greater than $462,000. If all of that came from wages, then for single people it would take an average wage of $224 an hour to make it into the top one percent, and $722 an hour to become an average member


To underscore: $6.55 per hour versus $224 per hour.

Some business leaders -- admittedly, not a large number or those running major companies -- support raising the minimum wage to a more livable level. A group called Business For Shared Prosperity says this:

We cannot build a strong 21st century economy on a 1950s' wage floor. We cannot build a strong 21st century economy when more and more hardworking Americans struggle to make ends meet. A fair minimum wage shows we value both work and responsible businesses. A fair minimum wage is a sound investment in the future of our communities and our nation.

One other aspect to note. When we don't get paid decently, it's obvious that our entire society suffers. Here is one example, in a piece today in The Wall Street Journal entitled "States Slammed By Tax Shortfalls":

The stumbling U.S. economy is forcing states to slash spending and cut jobs in order to close a projected $40 billion shortfall in the current fiscal year.

That gap -- identified Wednesday in a survey by the National Conference of State Legislatures -- is more than triple the size of the previous year's. It is the result of broad economic weakness at the state and local levels that could cause pain throughout this year and into 2010. Sales-tax collections, for example, have been hurt by the housing slump and high gasoline prices, which are prompting cutbacks in consumer spending. Personal income-tax collections have been hit by rising unemployment, while corporate income-tax collections have been eroded by falling profits.

"We expect it to get worse before it gets better," said Corina Eckl, fiscal-program director of the National Conference of State Legislatures. The conference's new report describes the shortfalls states face in their budgeting process for the current fiscal year, which began in July.

When people don't get decent paychecks, governments falter. They can't deliver the basic services everyone needs. It's a spiral that continues to head down.

So, yes, I am happy that millions of people will get a little more. But, coupled with that knowledge is the grim truth: the minimum wage hike is an economic sham perpetuated on us to cover up the vast rip-off that workers have had to endure for the last half century.