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Smart Money

Opinion | March 3, 2014

In favor of raising the minimum wage

On February 12, 2014, President Obama signed an executive order mandating that business with new or recently renewed federal contracts will have to pay their minimum wage workers $10.10 an hour starting in 2015. While this increase will only affect the less than half a million workers who provide concessions, services, and construction to the federal government, advocates of a higher minimum wage hope that this move will push Congress to pass the Fair Minimum Wage Act, a bill that promises to raise hourly pay for all minimum wage workers to match Obama’s mandate of $10.10 in three 95 cent increments by 2015.

The supporters of the Fair Minimum Wage Act emphasize that the bill is intended to help the minimum wage “catch up” with inflation that has occurred since 1968, when the minimum wage was at its peak buying power and the lowest paid Americans made $1.60 an hour, or, adjusted for inflation, $10.71 in 2013 dollars. Today the minimum wage has stalled at $7.25, meaning that an individual can work full time and still fall below the federal poverty line of $15,130 of yearly income for a family of two. Additionally, 58 percent of the jobs added since the end of the recession are classified as low-wage, making the minimum wage issue all the more relevant to the increasing worker population. A Congressional Budget Office report published on Feb. 18 estimates that raising the federal minimum wage to its proposed figure could lift 900,000 Americans out of poverty.

Arguments for the minimum wage increase are fairly straightforward. Low-income workers who will benefit from the wage increase are most likely to spend, rather than save, the majority of their income. As such, a wage hike will stimulate the economy through increased consumer spending. Furthermore, a higher minimum wage encourages productivity and decreases worker turnover. Businesses such as Gap have already realized the benefits of higher wages, as they increased hourly pay from the minimum wage to $10 an hour. Walmart, the nation’s largest private employer, is considering following suit—not out of philanthropic impulse, but economic rationale.

Critics say a higher minimum wage will harm small business owners. According to a report by Small Business Majority, however, 67 percent of small business owners also support an increase in the federal minimum wage. Finally, minimum wage earners themselves have organized behind groups like Fast Food Forward, a New York-based worker center, to stage protests calling for wage increases. If consumers, chains, small business owners, and minimum wage earners are all to benefit, why the controversy?

Arguments against raising the minimum wage focus on the misguided assumption that a wage increase will make it harder for businesses, especially small ones, to retain employees and hire new workers, and that this will in turn eliminate jobs. However, a 2013 study carried out by the University of California at Berkeley compared hundreds of counties in states with different minimum wages in the United States and found that boosting the minimum wage has little to no effect on employment, even during periods of high unemployment.

While the Right criticizes the supposed inefficiency of increasing the minimum wage, it also calls for the scaling back of public services and accuses the poor of leeching off of government handouts. Conservatives point out plenty of problems but offer no solutions to the growing problem of income inequality, suggesting instead that the mechanistic workings of a free market will ensure a living wage for the hardworking through the benevolent forces of competition. If elementary economics textbooks served as adequate models for the real world, one would imagine many problems of economic policy might be more simply resolved.

Unfortunately for conservative pundits and politicians, however, such models fail to account for the pervasive, systemic inequalities in access to education and job opportunities that complicate the picture. Conservatives who argue against increasing the minimum wage simultaneously profess concern for minimum wage earners while supporting school privatization measures, condemning public healthcare, and opposing a more progressive income tax structure.

This blatant contradiction in conservative logic exposes that, beneath the rhetoric around the economic wellbeing of working Americans, the Right is truly concerned with holding on to its shrinking base of support and expanding its political influence, even if it means opposing popular, economically beneficial legislation at the expense of minimum wage earners and the recovery of the economy as a whole. While Obama’s recent mandate is just a first step, time will show that increasing the minimum wage is part and parcel of a larger program of progressive economic reforms that must be enacted to create prosperity in the long run.