Minimum Wage, Maximum Inequality?

A bill to raise the floor on wages may be an empty gesture, but it opens a discussion worth having.

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(The Root) -- In a gesture that was more political theater than legislative substance, last week Democrats in the House and Senate introduced a bill that would raise the federal minimum wage from the current $7.25 per hour to $9.80 by 2014.

The bill has no chance of becoming law in this session of Congress. But it does shed a valuable light on a key issue for black Americans: the vast economic inequality in America and its impact on our society and politics.

About 1.7 million workers ages 15 and up earned exactly the minimum wage in 2011, according to the U.S. Labor Department (another 2.2 million were paid less). Of those who got the minimum wage, 324,000, or nearly one-fifth, were African American. They represented 6.1 percent of all black workers paid hourly rates. By comparison, 5.4 percent of Latino workers, 5.1 percent of whites and 3.3 percent of Asians were paid the minimum wage.

The Economic Policy Institute, a liberal-oriented research organization, estimates that raising the minimum wage to $9.80 per hour would generate more than $25 billion in consumer spending, create more than 100,000 full-time jobs and lift wages for close to 30 million workers, since raising the floor affects not only those who earn the minimum but also those who earn slightly more.

Not so fast, says Marc Freedman, executive director of labor-law policy at the U.S. Chamber of Commerce. "Has anybody who supports increasing the minimum wage ever told you where the employers are going to get the extra money?" he asks.

"When you raise the price for low-skilled workers," Freedman notes, "you are in some cases freezing those low-skilled workers out of the market, because employers who have to pay more would look for higher-skilled workers. Raising the minimum wage would not benefit those it's intended to benefit."

Among economists, there is disagreement about how a minimum wage increase would affect employment levels and the profits of small businesses. What is not in dispute is that the minimum wage is far lower, in real terms, than at any time in the past four decades.

The National Employment Law Project, another left-leaning advocacy group, notes that the minimum wage would be $10.55 per hour today if it had kept up with inflation over the past 40 years. And it would be more than $23 per hour, according to the NELP, if it had kept pace with the increase in executive salaries since 1990.

Stiglitz argues that fixing the U.S. economy requires a substantial increase in consumer demand, which is the purchase of everyday goods and services by millions of American households. And we can't increase demand, Stiglitz says, without addressing inequality.

You've probably seen the statistics that Stiglitz cites, but they bear repeating:

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