Magic 8 Ball says: Outlook is Good

One of the new Democratic majority's First 100 Hours agenda items is to increase the federal minimum wage, which has been stalled at $5.15 per hour for ten years. They don't say exactly what the proposed increase would be, but Sen. Ted Kennedy proposes a phased increase to $7.25 over a two year period. The Republican controlled Senate last year defeated a similar compromise proposal by Sen. Kennedy that would have increased the minimum wage to $6.25 per hour.

President Bush signaled that he might be able to find "common ground" with Democrats in Congress on increasing the minimum wage. But he and other Republican leaders have also said that an increase should be accompanied by some form of incentives for business to help offset the increased costs. They haven't offered specifics, but have mentioned tax relief for businesses most affected. Democrats have suggested employer tax credits to help pay for increasing health insurance premiums, so perhaps this is something they can use as a bargaining chip.

Big business and conservative economists are naturally opposed to a minimum wage increase, saying it will increase unemployment and create inflationary pressures. But increasing the minimum wage has found some unlikely allies, including Wal-Mart:

Wal-Mart's core lower-income shoppers could get more disposable income if Democrats push through a raise in the federal minimum wage of five-dollars-and-15 cents an hour.

Seattle-based fund manager Patricia Edwards says even a small increase would mean more cash for lower-income households that could be spent at Wal-Mart.

Even the National Federation of Independent Business, an advocacy/lobbying group for small businesses, says:

While businesses tend to oppose an increase in the minimum wage, Darien and McCracken noted that their groups' members tend to pay their employees above the minimum, making that less of an issue for them.

The NFIB opposes an increase in the minimum wage, but Danner noted, "in the past, they've tried to provide some kind of tax help for the small businesses most impacted by an increase. We'll be anxious to work with them on the minimum wage."

In addition to increased buying power among the working poor, another aspect that I have not seen discussed is the increased Social Security and Medicare funding that would result from raising the minimum wage. According to my guesstimates, increasing the minimum wage to $7.15 per hour would inject nearly $3 billion of new annual funding into Social Security and nearly $700 million into Medicare. That's not much given the massive size of these programs, but as they say, a billion here, a billion there, and pretty soon you're talking real money. And it gives low-wage workers a bigger stake and a better head start in preparing for their senior years.

Some argue that an increased minimum wage is a state and local issue, and they make a good point:

[B]etter $9.14 an hour in high-income, high-cost San Francisco than in Biloxi. "If Mississippi had the same minimum wage as San Francisco, it probably would cause a lot of unemployment," speculates Eric French, a senior economist specializing in labor and health issues at the Federal Reserve Bank of Chicago.

And indeed, many states have taken their own steps, including voters in six states who voted to increase the state minimum wage in last week's elections:

The measures won with support ranging from 76 percent in Missouri to 53 percent in Colorado, where business groups mounted an aggressive opposition campaign. Arizona, Montana, Nevada and Ohio also approved increases, joining 23 other states that already have set their minimum wages above the federal level.

The measures were placed on this year's ballots through citizen petition drives led by the AFL-CIO, the anti-poverty coalition ACORN and other liberal groups which faulted the Republican-led Congress for failing to raise the federal minimum wage since 1997.

"We did the job Congress refused to do," said ACORN's president, Maude Hurd. "Millions of families across the country will benefit."

There have been recent minimum wage victories in Southern states (Arkansas and North Carolina), but also defeats (Tennessee and Virginia). Alabama, South Carolina, Mississippi, and Louisiana also do not have higher state minimum wages.

In Alabama, a survey of economists at state universities showed that more than 60% opposed raising Alabama's minimum wage, citing concerns about increasing unemployment. But at least one economist took a more progressive approach in voicing his opposition:

Carl Ferguson, an associate dean for research and technology and a professor of marketing at the University of Alabama Center for Business and Economic Research, said tackling the minimum wage issue, as an economist, is complex.

He said for an increase of minimum wage to work, he proposes a ripple-effect system that is composed of investing in the U.S. work force, providing workers with education and giving them job opportunities to succeed in life.

"We have to recognize that, No. 1, there are going to be people who are working in the lowest-level jobs and we have a responsibility to give them gainful employment," Ferguson said. "We have a responsibility to make sure all of our citizens are educated in a way that everyone truly has a chance to achieve their best.

[..]The survey's findings note that 71.4 percent of Alabama economists strongly agreed that raising the minimum wage will result in a decrease in entry-level jobs in Alabama.

Ferguson said if companies are forced to pay workers more money but only have a certain amount of money available for salaries, they would hire fewer people and decrease those entry-level jobs to make up for losses.

[..]"If a reasonable plan is put together it needs to be a comprehensive package to do more to make the worker better qualified and justified to earn a decent wage," Ferguson said.

So while the argument that it's a state/local issue is interesting, as we've seen in the past with segregation, environmental regulation, and workplace safety (and those on the right could even argue NCLB), federal action is sometimes needed to encourage states to do the right thing. And states are still free to set a higher minimum wage.

Overall, it appears that raising the federal minimum wage will have somewhat less-than-enthusiastic bi-partisan support but support nonetheless in the Democrat controlled Congress. It also does not appear that business is prepared to put up much of a fight. This could spell good news for millions of American workers. It won't solve the problem of poverty in America, but it's a step in the right direction. And I approve this message.