Smarter ways to help the working poor than raising minimum wage


East Oregonian
By: Staff Writer
September 11, 2013

As momentum builds for an increase in the federal minimum wage, some argue it should be more than doubled from $7.25 to $15 per year.

But economists and social scientists remain split over whether such a change would help the economy, and especially those living on minimum wage.

Through our sometimes cloudy American dream prism, we think of minimum wage employment as temporary - a teenage introduction to the workplace. It is usually tied to a job high on labor and low on skills and responsibility: bussing tables, cleaning rooms, answering telephones. We also see it as a jumping-off point to jobs that require more responsibility and bring with them higher pay and better benefits.

Those who argue minimum wage should see a dramatic raise think the whole American system has gone out of whack, that salaries of upper management have grossly outpaced those of the lower rungs of labor. And they'd be right. The CEO of Goldman Sachs raked in $26 million in 2012 (down from a staggering $55 million in pre-plunge 2006).

But these kinds of outrageous anecdotes are the red herrings of the minimum wage debate, and darn if they didn't get us off track again. Collecting $20 million a year as a CEO is akin to winning the lottery, or finding a gold nugget in a pair of secondhand store slippers - they are just too far out of the pale to consider.

What we should really concentrate on are the roughly 4 million Americans working minimum wage jobs right now. Most of them are not teenagers. Would a significant bump in their annual wage help them on a micro level and how would it affect the economy on a macro level?

In a March 2013 op-ed in The New York Times, University of California economics professor Christina Romer argued that many economists believe a higher minimum wage will not lead to "better outcomes for the economy and reduce poverty."

It seems that raising the minimum wage would put more money into the hands of poor working families - just the people both sides of the political spectrum say they want to help - but that may not happen in practice. Data suggests a higher minimum wage could lead to layoffs and higher unemployment.

"Another reason ... is that businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices - including some of the diners at McDonald's and the shoppers at Wal-Mart - have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help," wrote Romer.

She said there are better ways to help the poor, specifically by making changes to the tax system - such as increasing and promoting the earned-income tax credit.

"This approach is very well targeted - the subsidy goes only to poor families - and could easily be made more generous," wrote Romer.

Other help could come in more federal dollars for education, specifically for community college and job training programs. Education can increase wages by increasing skills - not just by mandating it to be so.

We also understand that the income needed to survive in Stanfield is much different than Manhattan. Having state-specific minimum wage laws makes sense when the cost of living varies so dramatically depending on geography.

The economics of minimum wage are complex and confusing. Scientists who have studied the issues their whole lives disagree over the impact it has on our country.

Yet basic principles remain at play, and we are reminded that it is difficult to mandate fairness in a world we all know is patently unfair.

The fry cook at your local fast food restaurant does a thankless, difficult job that the CEO of Goldman Sachs couldn't do for one day. But their salaries are set by the grand economic market, by supply and demand, the building blocks of the capitalist system.

We think federal minimum wage could use a modest spike - say to the $8.95 Oregon level. But a dramatic rise to $15 an hour would be too difficult on many of the businesses that make up the backbone of the American economy.


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This page contains a single entry by CFED published on September 13, 2013 3:21 PM.

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