Nearly five years into the recovery from the Great Recession, the American economy remains fundamentally broken. Inequality is getting worse: Ninety-five percent of income gains since 2009 have gone to the top one percent of earners. Private employers have added more than 8 million jobs, but nearly two-thirds are low-wage positions. The American worker's share of the national income is as low as it's been in the six decades since World War II. But even as most Americans struggle just to tread water, corporate profits have soared to record highs.
Worse: The bottom rung of the economy is growing crowded; 3.8 million Americans – the equivalent population of the city of Los Angeles – now labor at or below the minimum wage. And that wage itself has lost more than 12 percent of its value since it was last hiked to $7.25 in 2007, due to inflation. In a more prosperous era, the stereotype of a minimum-wage worker was a teenager flipping burgers, earning a little beer money on the side. But in the new American economy, dominated by low-wage service jobs, fewer than one in four minimum-wage workers are teens. More than half are 25 or older. "The demographics have shifted," says Rep. George Miller, ranking Democrat on the House labor committee. "These are now important wage earners in their families."
As a matter of public policy, the solution is obvious. There are few government interventions that can match the elegance of a higher minimum wage. It boosts the fortunes of the working poor and the economy at large, with minimal trade-offs. Raising the minimum wage does little or nothing to dampen job growth. The Congressional Budget Office estimates that an increase to $10.10 would trim payrolls by less than one-third of one percent, even as it lifts nearly 1 million Americans out of poverty.
Outside of Washington, D.C., raising the minimum wage is not a partisan issue. Supported by more than 70 percent of Americans, the policy achieves both liberal and conservative goals: It alleviates poverty even as it underscores the value of hard work. It reduces corporate welfare even as it lessens dependence on the social safety net. Today, taxpayers are shelling out nearly $250 billion a year on welfare programs for the working poor. Nearly 40 percent of food stamps are paid out to households with at least one wage earner.
And yet, the Republican Party is going all out to portray a mandatory pay hike as just more job-killing nanny-state overreach. "You've gotta totally wipe out this notion of fairness," said Rush Limbaugh. "That's not what a job is. It isn't charity."
The GOP's mysterious determination to wrong-foot itself with the American electorate on the minimum wage is handing the Democratic Party a potent political weapon – one that could make the difference in holding the Senate in November.
For Democrats, the politics of a higher minimum wage are as solid as the economics. The issue unites progressives and independents even as it drives a wedge between mainstream Republicans and Tea Party extremists. In his January State of the Union address, President Obama threw down the gauntlet, calling on the GOP to join Democrats in increasing the minimum wage to $10.10 an hour. "Say yes," Obama said. "Give America a raise."
The current federal minimum wage is $7.25 an hour. That represents a pay cut, in real terms, of more than 30 percent from 1968's bottom wage. That decline in the value of the minimum wage has been a key driver of income inequality. "And unlike inequality that's been brought about by technological change or globalization," says Arindrajit Dube, labor economist at the University of Massachusetts Amherst, "we could have prevented it just by pegging the minimum wage to the cost of living."
There is no natural level for the minimum wage. Where it is set is purely a policy decision. In previous decades, the minimum wage kept pace with advances in productivity; as workers created more value for a company, they gained, too. Had the minimum wage tracked productivity gains since 1968, it would now stand above $20 an hour. More telling: Had workers on the lowest rung kept pace with the gains that have accrued to the one percent, it would have vaulted past $30 in 2007.
But there are other more wide-reaching effects of setting the minimum wage below what it takes to scrape by. A family of four trying to live on the earnings of a minimum-wage worker – $15,080 a year – falls more than $8,000 below the poverty line. As a result, today's minimum-wage workers are really expensive for the rest of us. They have to rely on taxpayers to supplement their subpoverty wages.
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