Increasing the Minimum Wage: Implications and Effects

Jan. 2

The Industry:public policy and urban planning

The Attendees: 125 economic and social reformers, analysts, and influencers crafting patches for civic problems

The Issues:

Buck Up: Opponents of the proposal to increase the federally mandated minimum wage from $5.15 to $7.25 an hour note that a raise would prompt some businesses to curtail capital investment and lay off employees—never mind that the current minimum gives workers the lowest level of purchasing power since 1954. Expanding training programs could be of greater benefit to employees and employers, contended Federal Reserve System research expert William Wascher: “Nothing benefits workers more than a strong macro economy.”

Wages of Spin: Georgetown public policy professor Harry Holzer disagreed that a minimum-wage hike would hurt business. He said current demographic data indicates an increase would benefit adults (and their families) more than teenage workers—”with virtually no impact on the impetus for capital investment.”

Reproductivity Boost: Policy researcher Elaine Maag’s alternative involves phasing in the refundable child tax credit starting at the first dollar of earnings. Under this proposal, a minimum-wage worker with more than one child would qualify for a child credit of up to $1,607, the equivalent of a 77-cent-per-hour increase in earnings. In contrast, current tax rules don’t allow the child credit unless earnings exceed $5.43 an hour for a full-time worker.

Horse Trading: President Bush’s endorsement of a minimum-wage increase comes with a price: business tax cuts to offset employers’ potential labor-cost increase. Jared Bernstein, director of the Economic Policy Institute’s living-standards program, explained that such tax cuts typically become permanent (while wage hikes erode over time due to inflation), have narrow benefits, and cost more than the wage increase. How much more? Bernstein’s group estimated $123 billion vs. $11.2 billion over 10 years—a ratio of 11 to 1.

Fair Game: When an attendee asserted that African-Americans and Hispanics would disproportionately benefit from a minimum-wage hike and tax-credit reforms, panelists responded that this would be acceptable, since these populations disproportionately number among the lowest-paid.

Max Minimum: A floating minimum wage? One panelist noted that bumping it up to 40 percent of the average economywide wage “is not a bad idea.”