Two years ago this week, 4.5 million of America’s workers enjoyed a modest pay increase, as the federal minimum wage rose from $6.55 to $7.25 an hour. The increase was the final of a three-step boost enacted in 2007. Of those getting a bump in pay, more than three-quarters were adults, nearly two-thirds were women, and nearly half a million were single parents with children under 18.
Yet during the past two years, these working families have seen the real value of their wages fall. Minimum-wage earners working full-time make roughly $15,000 a year. Had the minimum wage rate kept up with inflation, their paychecks would have increased by $800 this year. Instead, our nation’s lowest-paid workers have had an even harder time providing basic needs for their families. This is one more reason that Main Street is having a tough time recovering from the economic calamity brought on by financial collapse.
CEO compensation grew 23 percent in 2010, while pay for the average American worker grew only half a percent. Minimum wage workers have fared even worse: Since the 2009 increase, the real value of the minimum wage has fallen 5 percent.
The decline in value of the minimum wage during the past four decades has been even more dramatic, as prices for goods and services have risen much faster than the wage floor. If the minimum wage had kept up with inflation since the late 1960s, it would be $10.38 today. Yet, roughly a quarter of the nation’s work force is now earning less than that.
Instead of keeping the minimum wage current, Congress has acted just three times in the last three decades to increase it. The deterioration of the wage floor has helped fuel a level of economic inequality not seen in this nation since the early 1900s—the era of sweatshops and robber barons. With more and more income and wealth being transferred from working families to the super-rich, our economy, our democracy and the American way of life are under threat.
Some will say this is not the moment to be concerned with the minimum wage. But restoring the value of the minimum is in fact a key building block of sustainable economic recovery.
Businesses and economists agree that lack of demand is the primary driver of the stalled recovery and high unemployment. Without customers lining up for goods and services, employers will not expand their production or their payrolls. Raising the minimum wage would put more money in pockets of the lowest earners who have little choice but to spend their wages immediately. The Economic Policy Institute estimates that raising the minimum wage to $9.50, as President Obama proposed during the 2008 presidential campaign, would generate more than $60 billion in new consumer spending.
Wielding outdated economic theories, opponents claim that raising the minimum wage will cost jobs and slow rehiring. The tired canard that the minimum wage causes unemployment recently received national attention when reporters revisited 2005 testimony in which Congresswoman Michele Bachmann argued that eliminating the minimum wage would wipe out unemployment entirely. This extremist view was roundly criticized, yet many corporate interests still promote the dogma that raising the minimum wage reduces employment.
While simplistic supply and demand theory suggests that employment will fall as wages rise, this 18th century model fails to capture the complexities of how the labor market works. Two decades of rigorous empirical research has revealed that increases in the minimum wage have not cost jobs or slowed rehiring, even during times of high unemployment.
Since the end of the recession, corporate profits have recovered and CEO compensation has skyrocketed. Corporations are sitting pretty on nearly $2 trillion in assets that they refuse to use to expand production or rehire because the rest of America has little cash of their own to spend on goods and services. Raising the minimum wage will help Main Street share in—and power—a robust economic recovery. It’s the least we can do for those with the least means to stay afloat and get ahead in a brutal economy.
Christine Owens is executive director of the National Employment Law Project.
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