Economics

Economics

Order Description

Read “The Case for a Higher Minimum Wage.” Also refer to the graphic below the article showing productivity growth, the average wage, and current minimum wage proposals. Go to the Interactive exercise called, “Can You live on Minimum Wage.” Complete the exercise using your home town as your benchmark for rents and expenses. Assume that you DON’T live at home.

1. Using the textbook’s discussion of “technology as a labor complement” and “education and training,” make the argument for why the minimum wage does NOT cost jobs as is discussed at the end of the article. You must quote the text and the article once each in this answer.

2. Using the textbook’s discussion of “The Minimum Wage as an Example of a Price Floor” to make the argument for why the minimum wage DOES cost jobs as is discussed at the very end of the article. You must quote the text and the article once each in this answer.

3. Using the article and the textbook’s discussions of “living wage” laws in some cities as citations in your argument for or against “living wages” laws. You must quote the article and the textbook once each in this answer. Include your results from the “Can you live on minimum wage” excercise in your answer.

9/8/2014 The Case for a Higher Minimum Wage – NYTimes.com
http://www.nytimes.com/2014/02/09/opinion/sunday/the-case-for-a-higher-minimum-wage.html 1/5

SUNDAYREVIEW | EDITORIAL
The Case for a Higher Minimum Wage
By THE EDITORIAL BOARD FEB. 8, 2014
The political posturing over raising the minimum wage sometimes obscures
the huge and growing number of low-wage workers it would affect. An
estimated 27.8 million people would earn more money under the
Democratic proposal to lift the hourly minimum from $7.25 today to $10.10
by 2016. And most of them do not fit the low-wage stereotype of a teenager
with a summer job. Their average age is 35; most work full time; more than
one-fourth are parents; and, on average, they earn half of their families’ total
income.
None of that, however, has softened the hearts of opponents, including
congressional Republicans and low-wage employers, notably restaurant
owners and executives.
This is not a new debate. The minimum wage is a battlefield in a larger
political fight between Democrats and Republicans — dating back to the
New Deal legislation that instituted the first minimum wage in 1938 — over
government’s role in the economy, over raw versus regulated capitalism,
over corporate power versus public needs.
But the results of the wage debate are clear. Decades of research, facts
and evidence show that increasing the minimum wage is vital to the
economic security of tens of millions of Americans, and would be good for
the weak economy. As Congress begins its own debate, here are answers to
some basic questions about the need for an increase.
WHAT’S THE POINT OF THE MINIMUM WAGE? Most people
think of the minimum wage as the lowest legal hourly pay. That’s true, but it
9/8/2014 The Case for a Higher Minimum Wage – NYTimes.com
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is really much more than that. As defined in the name of the law that
established it — the Fair Labor Standards Act of 1938 — the minimum wage
is a fundamental labor standard designed to protect workers, just as child
labor laws and overtime pay rules do. Labor standards, like environmental
standards and investor protections, are essential to a functional economy.
Properly set and enforced, these standards check exploitation, pollution and
speculation. In the process, they promote broad and rising prosperity, as
well as public confidence.
The minimum wage is specifically intended to take aim at the inherent
imbalance in power between employers and low-wage workers that can push
wages down to poverty levels. An appropriate wage floor set by Congress
effectively substitutes for the bargaining power that low-wage workers lack.
When low-end wages rise, poverty and inequality are reduced. But that
doesn’t mean the minimum wage is a government program to provide
welfare, as critics sometimes imply in an attempt to link it to unpopular
policies. An hourly minimum of $10.10, for example, as Democrats have
proposed, would reduce the number of people living in poverty by 4.6
million, according to widely accepted research, without requiring the
government to tax, borrow or spend.
IS THERE AN ALTERNATIVE? No. Other programs, including food
stamps, Medicaid and the earned-income tax credit, also increase the
meager resources of low-wage workers, but they do not provide bargaining
power to claim a better wage. In fact, they can drive wages down, because
employers who pay poorly factor the government assistance into their wage
scales. This is especially true of the earned-income tax credit, a taxpayerprovided
wage subsidy that helps lift the income of working families above
the poverty line.
Conservatives often call for increases to the E.I.T.C. instead of a higher
minimum wage, saying that a higher minimum acts as an unfair and unwise
tax on low-wage employers. That’s a stretch, especially in light of rising
corporate profits even as pay has dwindled. It also ignores how the tax credit
increases the supply of low-wage labor by encouraging more people to work,
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holding down the cost of labor for employers. By one estimate, increasing
the tax credit by 10 percent reduces the wages of high-school educated
workers by 2 percent.
There are good reasons to expand the tax credit for childless workers, as
President Obama recently proposed. It is a successful antipoverty program
and a capstone in the conservative agenda to emphasize work over welfare.
But an expanded E.I.T.C. is no reason to stint on raising the minimum wage
— just the opposite. A higher minimum wage could help offset the wagedepressing
effect of a bolstered E.I.T.C., and would ensure that both
taxpayers and employers do their part to make work pay.
HOW HIGH SHOULD IT BE? There’s no perfect way to set the
minimum wage, but the most important benchmarks — purchasing power,
wage growth and productivity growth — demonstrate that the current $7.25
an hour is far too low. They also show that the proposed increase to $10.10
by 2016 is too modest.
The peak year for the minimum wage was 1968, when its purchasing
power was nearly $9.40 in 2013 dollars, as shown in the accompanying
chart. Since then, the erosion caused by inflation has obviously
overwhelmed the increases by Congress. Even a boost to $10.10 an hour by
2016 (also adjusted to 2013 dollars) would lift the minimum to just above its
real value in 1968. So while it is better than no increase, it is hardly a raise.
The situation is worse when the minimum wage is compared with the
average wages of typical American workers, the ones with production and
nonsupervisory jobs in the private sector. From the mid-1960s to the early
1980s, when one full-time, full-year minimum wage job could keep a family
of two above the poverty line, the minimum equaled about half of the
average wage. Today, it has fallen to one-third; to restore it to half would
require nearly $11 an hour, a better goal than $10.10.
The problem is that the average wage, recently $20.39 an hour, has also
stagnated over the past several decades, despite higher overall education
levels for typical workers and despite big increases in labor productivity.
People are working harder and churning out more goods and services, but
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there’s no sign of that in their paychecks. If the average wage had kept pace
with those productivity gains, it would be about $36 an hour today, and the
minimum wage, at half the average, would be about $18.
That is not to suggest that the hourly minimum wage could be
catapulted from $7.25 to $18. A minimum of $18 would be untenable with
the average hovering in the low $20s. But it does confirm that impersonal
market forces are not the only, or even the primary, reason for widespread
wage stagnation. Flawed policies and changing corporate norms are also to
blame, because they have allowed the benefits of productivity gains to flow
increasingly to profits, shareholder returns and executive pay, instead of
workers’ wages.
DOES IT KILL JOBS? The minimum wage is one of the most
thoroughly researched issues in economics. Studies in the last 20 years have
been especially informative, as economists have been able to compare states
that raised the wage above the federal level with those that did not.
The weight of the evidence shows that increases in the minimum wage
have lifted pay without hurting employment, a point that was driven home
in a recent letter to Mr. Obama and congressional leaders, signed by more
than 600 economists, among them Nobel laureates and past presidents of
the American Economic Association.
That economic conclusion dovetails with a recent comprehensive study,
which found that minimum wage increases resulted in “strong earnings
effects” — that is, higher pay — “and no employment effects” — that is, zero
job loss.
Evidence, however, does not stop conservatives from making the
argument that by raising the cost of labor, a higher minimum wage will hurt
businesses, leading them to cut jobs and harming the low-wage workers it is
intended to help. Alternatively, they argue it will hurt consumers by pushing
up prices precipitously. Those arguments are simplistic. Research and
experience show that employers do not automatically cope with a higher
minimum wage by laying off workers or not hiring new ones. Instead, they
pay up out of savings from reduced labor turnover, by slower wage increases
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higher up the scale, modest price increases or other adjustments.
Which brings the debate over raising the minimum wage full circle. The
real argument against it is political, not economic. Republican opposition
will likely keep any future increase in the minimum wage below a level that
would constitute a firm wage floor, though an increase to $10.10 an hour
would help tens of millions of workers. It also would help the economy by
supporting consumer spending that in turn supports job growth. It is not a
cure-all; it is not bold or innovative. But it is on the legislative agenda, and it
deserves to pass.
Meet The New York Times’s Editorial Board »
A version of this editorial appears in print on February 9, 2014, on page SR10 of the New York
edition with the headline: The Case for a Higher Minimum Wage.
© 2014 The New York Times Company