The Minimum Wage Increased Thursday--Why It Matters And Why It's Not Enough

by: Paul Rosenberg

Sat Jul 26, 2008 at 17:15


The federal minimum wage just increased to $6.55 / hour on Thursday.  While this increase will make a big difference in the lives of millions of people, it still leaves the minimum wage far below where it was in 1968, when the minimum wage reached its peak value in real terms.

An excellent overview of the issue can be found online in the 2005 report, "A Just Minimum Wage: Good For Workers, Business and Our Future" [PDF] by Holly Sklar and The Rev. Dr. Paul H. Sherry.  It was produced by the American Friends Service Committee and the National Council of Churches USA in support of the Let Justice Roll Living Wage Campaign, and combines a moral/religious perspective along with an empirical economic one that draws both on published data and on the views of enlightened business leaders.

This first chart from the report puts the current situation with the minimum wage in stark perspective:

The 1968 peak is not an accident, as I have written previously about how the 1968 election was a curious variant on the key phenomena of realigning elections.  What made 1968 different was that, rather than creating a unified re-alignment of voting blocks, it produced something never seen before in American politics-- a de-alignment of voters that produced a predominant pattern of divided government.  (See charts on flip). This pattern did not give outright power to the Republicans, but it did largely stymie the power of Democrats to make major improvements in power of government to make life better for the majority of Americans.  And nothing showed this more clearly than the way that the minimum wage has stagnated since 1968.

Paul Rosenberg :: The Minimum Wage Increased Thursday--Why It Matters And Why It's Not Enough
As can be seen in the following set of charts, mapping the party systems in terms of control of the House, Senate and Presidency, the most common pattern in that one party starts off dominant, and is challenged only after 3 terms (six congresses), with the dominant party usually controlling all three branches 9-13 congresses out of 15-18.  The First Party system was anomalous, because it coalesced gradually out of an informal system, and the defining realignment election did not occur until the fourth election (the so-called "Revolution of 1800"). Still, the pattern of numerical domination held.  However, the current system saw a complete break, with neither party dominating all three branches more than a few times.  This was enough, however, to greatly slow Democratic initiatives on behalf of the great mass of people the party had drawn to itself since 1932, and the stagnation of the minimum wage was a prime example of this.



The American Dream in Reverse

The report, "A Just Minimum Wage" notes:

The year 1968 is so long ago that most Americans living today were not even born yet. The costs of housing, health care and higher education have all risen dramatically since then. College tuition (public or private), for example, costs more than twice what it did in 1968, adjusting for inflation.3 But the minimum wage has 43 percent less buying power than it had in 1968-and that buying power keeps shrinking as the minimum wage goes without a raise.

The cost of health insurance has risen so much that family coverage now costs more than the entire annual income of a full-time worker at minimum wage.
• In 1991, family health coverage cost one-fourth of the yearly income of a minimum wage worker.
• In 1998, it took about half the yearly minimum wage.
• By 2005, family health coverage cost $10,880, and a full-time minimum wage was just $10,712.4

Dr. Martin Luther King did not dream that in the year 2005, the minimum wage would not have the buying power of 1950. He did not dream that in this new millennium we would be debating whether to "raise" the minimum wage to the level employers paid in the 1960s.

We are living the American Dream in reverse.

Left Behind

"A Just Minimum Wage" goes on to point out that the change in the minimum wage trajectory is quite divorced from the direction of the economy as a whole.  This can be seen in the following two charts.  First, a comparison of growth in productivity vs. the minimum wage, pre- and post-1973.  (For the most part, social movements and gains that had been made during the 1960s continued having positive impacts well into the 1970s, with the 1973/74 recession being the first major barrier to further progress.  Nixon was generally quite content to go along with Democratic domestic programs as a means to secure broad support for what he really cared about, which was the consolidation of power, generally, and it's specific application in foreign affairs, and in fighting his perceived domestic enemies.)

Next is a figure showing how wages have fared since 1968 compared to corporate profits.  Retail profits are particularly significant since they represent a very large, and growing segment of the minimum- and near-minimum-wage job market.

Support For Change

It's worth noting that support for increasing the minimum wage is very widespread:

In 2004, voters in Florida and Nevada approved ballot measures to raise their state minimum wage. "The minimum wage measures won in every county in both states. In conservative Escambia and Santa Rosa counties in the Florida Panhandle, where military bases and retired military veterans dominate the political culture, more than two-thirds of voters supported the wage boost, about the same margins they gave Bush. In Nevada's richest county, Douglas, near the Lake Tahoe resort area, where Bush garnered 63.5 percent of the vote, 61.5 percent of voters supported raising the minimum wage."
--Peter Dreier and Kelly Candaele, "A Moral Minimum Wage," The Nation, December 20, 2004.

The fact that the Kerry campaign failed to associate itself closely with these statewide initiatives surely didn't help his chances in 2004.  The right is extremely strategic in running socially divisive initiative campaigns to energize their base and polarize those in the middle.  But here was a no-brainer opportunity for the Democrats to capitalize on an initiative strongly favoring their position, and very little was done to capitalize on it.

Raising the Minumum Wage Works

Of course, market fundamentalists argue that the minimum wage is one of those defective socialist mandates that Cass Sunstein just loves to hate.  Higher minimum wages mean less jobs, they argue, using their one-size-fits-all Economics 101 models.  Well, in his 1996 book, Everything for Sale: The Virtues and Limits of Markets, Robert Kuttner used behavioral economics as one of his tools to help understand why this is a load of crap.  Labor markets aren't like other markets, he concluded, and a wealth of research since then backs up the arguments he made then.  Low wage workers tend to spend everything they make, so they pump more money into the local economy.  Increased wage rates make it more costly to lose experienced workers and spend time training new ones, so turnover rates tend to decline. And higher wage rates make it more important to look for ways to raise productivity--either through buying new equipment, investing in more training, or finding ways to work smarter.  These are all factors that simplistic models routinely fail to account for, but that end up having major impacts in the real world.

As "A Just Minimum Wage" reports:

More Jobs, Less Poverty After Last Minimum Wage Hikes

The minimum wage was last raised in two steps: increasing from $4.25 to $4.75 an hour in October 1996 and then to $5.15 in September 1997. In the words of a 2000 report by the Clinton administration's National Economic Council, "Since the 1996-97 increase in the minimum wage, the American economy-and labor markets in  particular-have continued to perform very strongly. Between September 1996 and February 2000, 10.2 million jobs were created... even stronger growth than in the previous 2 years. In retail trade, which has a large concentration of minimum wage workers, there were 1.4 million new jobs."49

Contrary to what minimum wage critics predicted, unemployment went down across the board across the country-including among people of color, teenagers, high school graduates with no college, and those with less than a high school education. As the Department of Labor Monthly Labor Review summed it up, 2000 ended with the overall unemployment rate at 4 percent, the lowest rate since 1969. "Every census region and geographic division attained its lowest quarterly unemployment rate on record in 2000." Looking more closely at fourth quarter 2000, the teenage unemployment rate of 12.9 percent was the lowest since 1969. "The unemployment rates for Hispanics (5.6 percent) and blacks (7.5 percent) declined to record lows in 2000, whereas the rate for whites (3.5 percent) was unchanged from the prior year's 3-decade low."50

The higher minimum wage reduced poverty, including among teenagers and high school dropouts-two demographic groups that opponents asserted would be disproportionately harmed by such an increase.51

In short, between 1996 and 2000, the economy had unusually high growth, low inflation, low unemployment and declining poverty rates-until the Federal Reserve purposefully slowed economic growth by repeatedly raising interest rates during 1999 and 2000. The economy broke the record for the longest expansion in U.S.  history in February 2000. (The economic expansion officially lasted ten years from March 1991 until March 2001, although the stock market bubble burst in March 2000.)

But there's even more:

"New research on the minimum wage has swayed a substantial part of the economics profession over the past decade towards support for a higher minimum wage," the Keystone Research Center observes.53 In 2004, 562 economists, including four Nobel Prize winners in economics, endorsed a statement in support of raising the minimum wage. "The minimum wage has been an important part of our nation's economy for 65 years," the economists said. "It is based on the principle of valuing work by establishing an hourly wage floor beneath which employers cannot pay their workers... The minimum wage is also an important tool in fighting poverty."54

And there's further support in state-level data:

Job Trends Better in States with Higher Minimums

A growing number of states have raised their state minimum wages above the federal level. Oregon has the second-highest state minimum (see table below). Dan Gardner, commissioner of Oregon's Bureau of Labor and Industries, says, "Overall most low-wage workers pump every dollar of their paychecks directly into the local economy by spending their money in their neighborhood stores, local pharmacies, and corner markets. When the minimum wage increases, local economies benefit from the increased purchasing power."55

States with higher minimum wages have shown stronger employment trends than the other states, including for retail businesses and small businesses (discussed in the next chapter). The Fiscal Policy Institute looked at the 11 states-Alaska, California, Connecticut, Delaware, Hawaii, Maine, Massachusetts, Oregon, Rhode Island, Vermont, Washington-and the District of Columbia (DC) that had higher wages than the federal level by 2004. The Institute reports:
• Total employment in the states with a higher minimum wage increased by 6.2 percent from January 1998 to January 2004, 50 percent greater than the combined job growth of 4.1 percent for states where the federal minimum wage prevailed.
• Retail employment grew by 6.1 percent in the states with higher minimums versus 1.9 percent in the other states.56

Oregon has the second-highest minimum wage after the state of Washington. The Oregon Center for Public Policy analyzed employment in the restaurant and agricultural sectors, which have large numbers of minimum wage workers. The Center found that contrary to predictions of job losses, "Oregon's restaurants and farms have been adding jobs more rapidly than employers generally since Oregon voters raised the minimum wage and established annual cost of living adjustments."57

At this writing, 17 states and the District of Columbia (DC) have state minimum wage rates set higher than the federal minimum wage.

The Limits of Individual Effort

Finally, one of the most powerful narratives we are working against is the individualist narrative that says people are to blame for their own poverty.  This is an argument that can seem to make sense on the individual level.  All things being equal, it makes sense that someone who works harder will do better economically.  But, of course, all things are rarely, if ever equal.  And one thing that no worker has control over is the state of the overall economy, including the sorts of jobs that are available.

In contrast to the myth, there is a two-fold reality: first, that even those with more education are falling behind, and second, that most job growth is coming in fields that don't require much education.  Both these factors significantly limit how much an individual can do to improve their economic status through education--and that's not even considering the fact that education is more costly then ever before:

We often hear that increased pay inequality is due to the economy's demand for a more educated, more skilled workforce. The reality is that workers are more educated than past generations, but pay is falling behind. The reality is that high-tech workers are losing ground as well.42 The reality is that most of the 20 occupations expected to produce the most jobs in the future don't require higher education and don't pay high wages. (See Table 2.1.)

The largest number of workers paid at or below minimum wage come from retail trade, leisure and hospitality, and education and health services. The occupations with the largest percentage of workers paid at or below minimum wage are:
• Food preparation and serving related  occupations-19 percent at or below $5.15 and 66 percent under $8.50 in 2004.
• Personal care and service occupations-6.7 percent at or under $5.15 and 48 percent under $8.50.
• Farming, fishery and forestry occupations-3.5  percent at or under $5.15 and 56 percent under $8.50.43

Most of those occupations are among the occupations projected by the Bureau of Labor Statistics to produce the largest job growth between 2002 and 2012. Only 5 out of the 20 top job producers (see table below) have median hourly pay that is higher than the overall median hourly wage of $13.84 for 2004. The rest are lower. Seven of the 20 occupations pay at or below $9.04, about the value of the minimum wage of 1968, adjusting for inflation.

Conclusion

All the above points to a tremendous need to restore equity and hope for tens of millions of Americans.  And with that need comes political opportunity as well.  An activist government that makes a positive difference in people's lives is what lies at the very core of the liberal political vision.  Government doesn't do everything for us, but it does for us what we cannot do alone.  And raising the floor for all of us is just that kind of thing.

The minimum wage is like many other kinds of minimal inclusionary practices that a liberal government promises--such as the inalienable rights guaranteed in our Constitution, but also the sorts of opportunity that markets alone cannot always provide--such as rural electrification in the 1930s, and universal broadband today.  Raising the floor for all does not eliminate differences based on hard work, education and sacrifice.  It simply removes a level of deprivation that the vast majority of people experience through no fault of their own.  Raising the minimum wage to the level of a living wage should be a cornerstone of what Democrats commit to in the coming Congress.  It should be a key part of the foundations on which a new New Deal is built.


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Pulling your own weight (4.00 / 1)
I've long thought that the minimum wage was the single most important simple thing the government can do to improve American life, for all the reasons you give above.  

Also, it really cuts across the conservative narrative that everyone needs to pull their own weight as the minimum wage rewards work.  This is where the honest conservative and honest liberal aught to agree.  But the honest conservative is hard to come by these days and shows them for their true colors -- corporate shrills.


Except That (0.00 / 0)
in the voting booth, where you're talking about everyday self-identified conservative voters, as opposed to the movement conservative zombies, there is a fairly high level of support for the minimum wage.  So those honest conservatives are out there, they're just not all that high-visibility.

Bruce Fein excepted, of course.


"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
Note the correlation (4.00 / 1)
All of this is more or less music to my ears.

One particular piece of symmetry you didn't pick up on, however, comes from the quote you took from the Department of Labor Monthly Review. The phrase "lowest since 1969" came up repeatedly, which fits with the highest purchasing power of the minimum wage, which fits with the beginning of the Sixth Party System.

What 1968 represented was not a partisan political realignment but a change of the influences in politics. Data has become less important and market fundamentalism has become more important. The correlation may not be directly related (although it's hardly a coincidence) but it is very much emblematic.

Forgotten Countries - a foreign policy-focused blog


Partisan Realignments (4.00 / 1)
I didn't make a point of it here, but generally speaking, partisan realignments have to do with a whole mix of factors, including salient issues, modes of communication, and forms of identification (as when a good chunk of working class Protestants started thinking of themselves more as working class than as Prostestant in 1932).  So when you say:

What 1968 represented was not a partisan political realignment but a change of the influences in politics. Data has become less important and market fundamentalism has become more important.

I understand what you're getting at, I just wouldn't put it like that.  And I also don't think I'd say that market fundamentalism became more important.  I think that race and ethnicity did--a reversal of 1932 that had been in process for some time, but in 1968, the dam broke.  Market fundamentalism was actually a very elite thing, and as Naomi Klein argues in The Shock Doctrine, the US wasn't ready for it in the 1970s (Nixon instituted a wage/price freeze, for gosh sakes!), and really wasn't ready for it under Reagan, either.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
I'm tired and phrasing myself badly (0.00 / 0)
Race and ethnicity became more important for voters, but market fundamentalism became (if very gradually until the late 1980s) much more important for the elites. And since race and ethnicity do not generally make for good class-based politics, a divide and conquer strategy has made the political and economic elites much more powerful.

Otherwise I'd agree with your restructurings of my comments.

Forgotten Countries - a foreign policy-focused blog


[ Parent ]
I Think You Have To Look At The Elites (0.00 / 0)
I think one can make a good case that the elites didn't move sharply to the right until sometime after the 1976 election.  Up until then it was a period of flux where some elements moved right, but there wasn't a consensus.  By the time of the PATCO strike, however, they were primed and ready to go.

Even then, however, their attitudes had not filtered down to control the press.  The early 1980s were a period of intense pressure from above, which only produced a politically reliable press by the time of the 1984 election, and even then you had Dan Rather asking Bush I embarrassing questions about Iran/Contra in 1988, and it was only when Bush turned on Rather and the rest of the press backed Bush that things were finally fully nailed down.

The right then bailed on Bush in 1992, after he'd broken his "no new taxes" pledge, letting Clinton get in, but then there immediately began an unprecedented attack against Clinton--no honeymoon period at all, for the first time probably in US history, followed by the the ginning up of Whitewater, and another, much longer totally unprecedented period of venomous hostility leading up to, and beyond the Clinton impeachment.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
Great post Paul (4.00 / 1)
This is a very good analysis and yes we need dramatic rise in wealth distribution in this country.  

Over on The Economic Populist, midtowng just posted a very detailed post on the tanking dollar and how we're stuck.  It's really a good read (as are many other posts) but this also have a strong effect on your PPP (otherwise known as purchase power parity).  

Probably the most dramatic number is how the cost of health care exceeds all earnings per year of your statistics.

NoSlaves.com  


The Economic Populist


Health Care (4.00 / 1)
Yes, health care is the other great economic universal that really plays a central role.  Unfortunately, it's got a much more organized opposition keeping it fucked up.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
sure does (4.00 / 1)
in terms of global wage arbitrage it's also a factor, not as large as some believe (or try to claim to take the focus on their own bad votes, ahem Wyden), but one effect that we're seeing now, in droves, is institutionalized age discrimination.  I mean this is bad and what's really bad is few are paying attention to retirement funds.  Corporations are basically cutting off a good 20 income earning years with age discrimination.  This whole perception that older workers cost more is a direct affect of the high costs.  So, one can argue that having universal health care is an economic competitiveness issue.  Remember when (and they do this periodically), all of those corporatists tried to claim the EU (Canada) would crash and burn economically because they are socialists....well, they basically blow past the United States on economic competitiveness scaling.  

This is the wall street fight from hell.  Watching traders discuss drugs, profits when there is real pain and suffering, plus if a drug fails, the stock price is affected of a particular company, or how health care is a great place for profits because of the aging population or an increase in the Medicare bill and so on, one learns real quick that they are making huge bucks off of sick people and that's just plain wrong.  Reminds me of the picking of the pockets of the dead in the Victorian era.

BTW, EP is hopping (growing) and everyone is invited to come over, join in if they are an trade/economics/tax/labor policy wonk (ette) and like to get into the nitty gritty.

NoSlaves.com  


The Economic Populist


[ Parent ]
You Are Definitely Pushing Me Towards Another Post On This Next Week (4.00 / 1)
Which I was already headed toward in a somewhat desultory fashion.  But you've given me a real push.

What I'm concerned about is not just the issue itself (well, duh!) but how it can be talked about in a way that cuts through the crap.  (Gee, now why didn't anyone else think of that?  Ummm, because it's hard?)

So, stay tuned.  I hope to make it worthwhile.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
it is hard (0.00 / 0)
to analyze economics, trade, age discrimination, globalization with real statistics, much harder.  Hey, give a plug for EP, people are working their ass off in terms of researching their posts over there, speaking of hard topics.

I'll look for you post and do a cross link.    

NoSlaves.com  


The Economic Populist


[ Parent ]
interesting post (4.00 / 1)
As always, an interesting post.  Without being able to fill in all the details, my guess is that you might be giving too much play to partisan factors as the underlying cause rather than a reflection of something more structural in nature.  I say this because social/electoral politics in other countries (UK, India, etc.) followed a similar trajectory, albeit with different timing and in ways that look different depending on the context of the country.  the rejoinder would be that these followed u.s. politics, but i wouldn't buy that in all cases.  There are other things globally that are of interest too - the sino-soviet split, the oil price shocks, inflation, global economic slowdown, the declining influence of the soviet union, etc.

So I would guess (just a guess) that party politics was a mediating factor through which the top segment of American society and other societies were able to capture policy making, but it wasn't actually the cause of the anti-poor policies (minimum wage included) that followed.


It's Not Either/Or (0.00 / 0)
between partisan factors and "something more structural in nature".  Indeed, the periodic restructuring of the US party system is precisely due to the fact that party coalitions form around structural cleavages, and then remain in place while new "tectonic" tensions develop, until those tensions erupt and produce new cleavages and a new realignment.

From 1800 to 1896, these restructurings were but loosely integrated with the rest of the world, but in 1932 that changed radically, and the New Deal Era reflected, and was stabilized by its response to the world-wide challenges of industrialization.  Similar approaches were adopted by other countries--with Sweden leading the way, as the first country to recover from the Great Depression, followed Nazi Germany, taking the military Keynsesian approach, one year later.  After WWII, the British gave the name "welfare state" to the alternative to the NAZI "warfare state" and the term stuck as it was adopted by virtually all of Western Europe.

While elites across the globe started turning hostile to the welfare state some time ago, the people have not followed suit, and the welfare state has arguably grown stronger, on balance, than it was in 1968 in Western Europe as a whole.  This is not to say that there aren't similar pressures.  There clearly are.  But the linkages are just that--linkages.  We are not uniformly embedded in a unified matrix of underlying structural forces.  It's more varied and more complicated than that.

In short, I would quibble with how you expressed it, but the basic thrust of your comment, to highlight the existence of such forces, is certainly spot on.  What's more, the emergence of truly global problems and dynamics, such as global warming, and the exhaustion of energy reserves and other resources, may well produce a much stronger integration of global response patterns than we have seen so far in the next period of party realignment.  

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
one disagreement, one minor point (0.00 / 0)
[It's not an either/or] between partisan factors and "something more structural in nature"

I agree, but the process becomes how to understand the various factors.  As a good (or perhaps overly economistic) scientific socialist, I believe that both are operating, but that it's possible to apply some sense of what's more of a reflection (even though it has some influence) and what's more of a driving cause.  My  own bias is to assume that global capitalism was driving the changes (with a LOT of other factors, including the social strife that existed in many places in the 60s and 70s, reactions to that, partisan factors, the structure of party politics in the u.s., etc.).  I can't really mount an argument for it because I don't have the pieces to do so, but it would be good to hear an argument for why party politics might be prior to underlying economic and political economy drives.

I do agree with you that the U.S. elite has led the drive against state involvement in the economy (of all kinds), and that that persisted regardless in many places until the final downfall of the soviet union or some other factor (e.g. still does in China, that's how South Korea grew, etc.)  This is a broader group than the "welfare states" but they have the same basic idea.  So maybe this would the argument for why U.S. domestic politics or party structure or something else within the U.S. drove a global trend.  Or simply that the U.S. dominated global capitalism, so it sneezed and Thatcher followed.

on the minor point - the new knowledge about global warming is a pointer to the global effects of capitalism, but I don't think the latter are recent.  capitalism has been expanding and gradually become "global" with the onset of imperialism in the 15th century (and probably reached its full culmination in the late 19th early 20th).  It might be that now some of the negative global effects of capitalism are being felt by people in rich countries as well as poor?  I don't know.



[ Parent ]
I'm Not Sure We Disagree (0.00 / 0)
Since I do think that economics is the fundamental driver, and that the US became more similar to the rest of the world as its economy become more integrated into the world system and more in step with the other most advanced economies.

There is a difference in emphasis, due to the fact that the party analysis came out of a political science approach that was not grounded in a materialist economic analysis, and I think that there's a value in preserving some of the insights it produced.

I have never been a reductionist, and I always think there's a value in preserving the particular insights that come from various different levels and schools of analysis unless or until it can be shown conclusively that those insights are either mistaken, or can more effectively be derived from a simpler and more direct analysis derived from a more fundamental level.

In short, I would agree that the party dynamics is more a reflection of more fundamental forces at work, but I still think that the US political system is so different from other systems that I would be reluctant to hurriedly dismiss the particular insights developed by US political scientists in favor of some grand synthesis.  I'd rather preserve both approaches, not because of equal ontological status in any ultimate sense, but simply because of the utility of doing so given our current state of knowledge.

It's simply a pragmatic judgment that this approach is likely to provide more insight than a rush toward a premature reductionism, no matter how well justified that might be on some theoretical basis.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3


[ Parent ]
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