America needs a raise


“This is a year of action,” the president proclaimed to Congress during his State of the Union address. Despite his success at keeping unemployment low and reviving the US manufacturing sector, President Obama conceded in his speech that the broader economic recovery has not translated into a better lot for America’s working poor. “After four years of economic growth, corporate profits and stock prices have rarely been higher,” said Obama. “Those at the top have never done better. But average wages have barely budged.” The message was clear: we may have weathered an economic storm, but many of us have spent decades in the rain. The time has come to focus national attention on how the pie is divided – the time has come to give America a raise.

The president thus urged Congress to support legislation increasing the federal minimum hourly wage to $10.10, the same rate in real terms as it was in 1979, and henceforth tying it to inflation. For many struggling Americans, though, such a proposal was underwhelming and long overdue.

The American minimum wage is far less than that of other industrialized nations. The gap between the richest one per cent and the rest is chasmic – the widest since the Roaring Twenties.

The incomes of that one per cent have risen nearly 20 per cent in 2012, whereas the remaining 99 per cent have only obtained an additional one per cent. Low-wage workers require 19 weeks of full-time labour to earn a year’s worth of health coverage; in 1979, it took three weeks. An overwhelming two-thirds majority, of Democrats and Republicans alike, supported Obama’s proposed increase; all’s well that ends well, no?

Not in Congress. Some economists and many conservative politicians have objected to the wage hike, contending that such an increase would have a chilling effect on employment. There is also an element of concern over perceived eat-the-rich populist rancor: just who in Washington is to decide how rich or poor someone can become? At what point can we draw a line which the creeping tendrils of government cannot cross?

While the notion of Washington meddling in economic affairs in the land of free markets and free people is incendiary even in the best of times, the tepid and fragile recovery has only served to further inflame the passions of libertarian purists. On both points House Majority Leader John Boehner stated his concerns with a sputtering of reductionist bravado, exclaiming: “When you raise the price of employment, guess what happens? You get less of it.”

Mr Boehner’s categorical objection is based on the entrenched Conservative meme that an increased minimum wage would result in widespread downsizing, and the subsequent concern that the government would have to provide benefits for those who lost their jobs.

These worries are groundless. Historical evidence as well as empirical data points to the exact opposite. When Britain first implemented its minimum wage, there was fear of growing unemployment. Ultimately, however, the minimum wage caused little to no harm to businesses and served as a huge boon to the workingman.

In a study of fast-food restaurants in New Jersey, an increase in the state’s minimum wage actually resulted in increased employment. Working folk, as it turns out, spend a considerably high proportion of their disposable income, and are therefore more likely to respond to an increase in wages with increased consumption. This consumption stimulates the US economy, which grows toward providing even more jobs.

Perhaps most striking is the fact that, with the current minimum wage, America’s poor are costing the government about as much as the unemployed. The minimum wage is insufficient means to live on, and thus employed workers often rely on benefits to make ends meet. 40 percent of the 47 million Americans who receive food benefits live in a working household.

A study conducted by the US Committee on Education and the Workforce found that each Wal-Mart employee costs taxpayers $5,815 an- nually – $1.7 million per store. It is truly a marker of a sad state of affairs when an employer like Wal-Mart actually encourages its employees to apply for government benefits to make up the difference between their wage and the cost of living. What good are low prices when workers can barely afford food? As a matter of social ethics and practical economics, the time has come to give America a raise.


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