Minimum Wage, Maximum Inequality?

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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.

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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.

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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.

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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.

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

* In 2007, the year before the collapse of the economy, the top 0.1 percent of America's households had an income that was 220 times larger than the average of the bottom 90 percent.

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* The wealthiest 1 percent of U.S. households owned more than one-third of all of America's wealth.

* In the first postrecession years of the new millennium, 2002-2007, the top 1 percent grabbed more than 65 percent of the gain in total national income.

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* In 2010 it got worse: The top 1 percent received 93 percent of the increase in total national income.

It wasn't always like this. From 1950 to 1970 — years of sustained growth and prosperity, Stiglitz reminds us — there was a marked reduction in income inequality in America, due in part to development in the markets, "but even more to government policies, such as the increased access to higher education provided by the GI Bill, and the highly progressive tax system enacted during World War II. In the years after the 'Reagan revolution,' by contrast, the divide in market incomes increased, at the same time government initiatives to temper the inequities of the marketplace were dismantled, taxes at the top were lowered, and social programs were cut back.

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"While there may be underlying economic forces at play, politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest," Stiglitz writes. "The economic elite have pushed for a framework that benefits them at the expense of the rest, but it is an economic system that is neither efficient nor fair."

An increase in the minimum wage would in no way eliminate the problem of inequality in America. The proposed increase would raise the annual salary of a full-time minimum wage worker from $15,080 to $20,384, still just one-sixty-fourth of the $1.3 million average annual earnings of the top 1 percent of households.

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And the bill won't get through Congress. Although it has more than 100 Democratic co-sponsors, no hearings have been scheduled. "That's up to the [Republican] majority, and they have no interest in it," said Aaron Albright, a spokesman for Rep. George Miller (D-Calif.), the bill's principal sponsor in the House. "Chances of passage this year are minimal at best. Last time, it took 10 years and control of Congress to get something passed. But we have to start somewhere."

Harold J. Logan is a business writer with a background as an Internet entrepreneur.

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