Friday, April 27, 2012

The Federal Minimum Wage

Bloomberg Business Week on their opinion page editorialized in favor of raising the minimum wage to as a level as high as $9.80 an hour and with a CPI escalator.  Business Week writers argued that a "A low-wage bias is creeping into the economy" where in many cases minimum wage jobs are all that is available. The article argued that raising the minimum wage would have a "wage ladder" effect where employers would bump up salaries for slightly higher-paid employees too.

Throughout the United States, states have become passed minimum wages higher than the federal rate of $7.25 an hour. The variability of state rates along state border areas has given economists access to new empirical data from which to study the impact of the wage hike on employment. A team of Berkeley economists looked at changes in wages and employment in contiguous counties on both sides of state borders with variable minimum wages. The consolidated data showed little if any employment impacts from state who raised their minimum wage.

According to Business Week, "The Federal minimum wage was always meant to be a floor, not a ceiling. Today, someone earnings the minimum would have to work 749 hours to afford one year of health insurance premiums and 923 hours to afford a year's tuition at a public four year university.

Washington State already has the highest minimum wage in the country at $9.04 per hour. The Washington wage also has a CPI escalator which adjusts the wage with the Seattle Consumer Price Index. A prominent federal minimum wage bill sponsored by Senator Tom Harkin would raise the federal wage to $9.80 an hour.

Most of the strategies for improving living standards focus on education as the solution. For a large portion of the labor market, that makes a lot of sense. But our economy will always have a large, low-skill, low-paying labor market where education and skills will not lead to higher wages. For this sector, we have to focus on economic justice. The rest of us in society should pay a bit more for our services in order to ensure that all Americans have enough to live on.

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