PUBLIC RADIO'S MARKETPLACE COMMENTARIES:

Marketplace, July 5, 2006

The Minimum Wage, Immigration, and Election-Year Politics

Between now and the mid-term elections in November, Senate Democrats will be looking for every opportunity to add a minimum wage amendment to anything that moves in the Senate. The reason is simple: In poll after poll, more than 80 percent of Americans say they favor an increase. Every time Republicans vote it down they look like grinches.

Most Americans understand it’s a matter of simple fairness. The current minimum is $5.15 an hour, which comes to $10,712 a year for a full-time worker. These days, a garden-variety chief executive takes home $8 million a year, which comes to $3,846 an hour. The Bush tax breaks have given them an extra $60 an hour.

Granted, many workers at or near the minimum wage are not the only people in their households who are working. Some are teenagers. But the majority are adults, and some are heads of households. And they deserve a decent wage, especially now that we've ended welfare and have a large and growing number of people who are working full time but still in poverty.

Now, we can't raise the minimum wage too much probably not more than two dollars an hour without causing some employers to decide it’s not worth hiring that extra person. From a purely economic perspective, a better way to make sure poor workers get a decent wage is by expanding the Earned Income Tax Credit, a reverse income tax that supplements the wages of workers on the bottom. Right now, the EITC gives them about $3,000 a year.

But the minimum wage is also a moral statement about the minimum value of work in our society. And it’s been dropping. In the late 1940s and 1950s, the minimum wage stayed about half the wage of the average non-supervisory worker. Now, it’s down to 31 percent, its lowest portion since World War II. After adjusting for inflation, today’s minimum of $5.15 is at its lowest level since 1955. In todays dollars, it was $7.71 in 1968. The last time it was increased was ten years ago, and that increase has been eliminated by inflation.

The basic question is what a decent society can afford to pay its lowest-paid workers. Between 2002 and 2005, American productivity grew 10 percent yet workers in the bottom tenth of the income range still lost ground, with average wages dropping 3 percent in real terms.

Some of this drop can be attributed to a flood of low-skilled, undocumented immigrants willing to work for peanuts. Unlawful immigration may be a boon to employers and consumers, but it has taken a toll on low-wage workers who now have to compete with them. The eagerness of undocumented workers to accept below-minimum wages is a big reason why unscrupulous employers are willing to run the risk of hiring them.

So here’s the deal. Raise the minimum to $7 an hour, and also increase dramatically penalties on employers who fail to pay it.

If Republicans were smart, they’d add another provision: Index the minimum wage to inflation, so they’d no longer have to look like grinches by voting down minimum wage bills every election season.