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At a Minimum

There is little doubt that income inequality will become the Democratic Party’s big issue for 2014. While there is a good chance the problem will correct itself once there is upward pressure on wages again, it is still an important policy that the Federal Government can and should pursue. It’s very popular, too, with 58% of identified independents supporting some action.

Barataria has outlined a few ideas that will have a longer-term effect, but what can be done in the short term? The answer is something equally popular, raising the minimum wage to $10.10 an hour – a 39% increase. It seems like a longshot, given the Republican House, but if the recent budget deal forged by Sen Murray and Rep Ryan is an indication of the future there may be room for a grand deal. But there is little doubt that the Democratic position will include the minimum wage increase. It’s worth getting to know well.

Most workers who make minimum are adults, many have families to feed

Most workers who make minimum are adults, many have families to feed

Those who oppose the Minimum Wage increase say that it will result in a net loss of jobs, which actually hurts the poor more than helps them. This is not supported by many years of economic research, however. A paper given by John Schmitt at the Center for Economic and Policy Research (CEPR) studied many papers on the topic and concluded that there is no reason to expect a net job loss. The reason is that minimum wage employees account for such a small amount of the cost at large corporations, which provide about half of all jobs, it is simply not a big net increase in cost.

The median age for a minimum wage worker is about 24, which is to say it’s not simply for teenagers.  Many families living in poverty are working at minimum wage and would benefit from an increase.

This is backed by many other studies which show that there is always a net benefit for even a small increase in the minimum wage in terms of getting people out of poverty. It’s no cure-all, however, with even a jump of 39% bringing 4.6M people out of poverty – only about 10% of the nation’s poor. There is always the possibility that given a jump in minimum wage that large the result may not scale. It’s simply never been done before.

You've been warned

You’ve been warned

But if the problem may correct itself, why bother? The simple answer is that the sooner we can get people out of poverty the sooner we can start building towards the next economy that is coming – one that will value workers more, especially those with some skills. Anything passed in 2014 won’t take effect until 2015 at the earliest, and even that is likely to be phased in over some period of time. Action now will take effect when it is needed the most, which is to say when the economy is genuinely picking up. The addition of 2M jobs in 2013 should accelerate to 2.5M or more in 2014, finally starting to turn the corner. This is the time to do it.

Are we a team yet?

Are we a team yet?

But can it be done? Forbes magazine recently suggested a “grand bargain” on economic policy that would include major corporate tax reform, including a big reduction in the top rate, for the minimum wage increase. Ahead of the election it’s a wise thing to do. Both parties would deliver on big promises to their bases and show genuine progress that has not been seen in 2013. It’s a good idea that would have to build on the limited success created so far. Despite all the promise it still seems unlikely without some major changes in rhetoric, but congress’ unpopularity is definitely not an asset going into an election.

No matter what, there will be some maneuvering on this issue. It’s also a good idea and the best way to start setting up some of the structure that is needed for the next economy. There would still be a lot of work to do beyond that, but a grand deal would change the landscape significantly. If a deal is attempted but blocked, the possibility of a changed congress becomes much more likely. The Democrats would be very wise to demonstrate willingness to get to work no matter what.

A big increase in the minimum wage is a good idea, but it’s also excellent politics. It could be bundled with other reforms that will make it either more palatable or popular. Issues like this don’t come along every day, so we can expect this one to stick around through 2014 – and perhaps even become a reality.

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11 thoughts on “At a Minimum

  1. Erik ………. $10.10 an hour? Could you live on $10.10? You still seem to live in the fantasy
    world that the Democrats give a shit. They don’t. They’re a sad lot and they have worked hand in hand with the Republicans to step on the working classes. These guys in Congress are a club of rich fucks!

    An immediate change would be to break up the big banks and reinstate Glass – Steagall .
    Another would be to arrest and prosecute those who have cheated and in the process broke the laws that are already on the books. And these changes are not even the minimum!

    The fact that you even read Forbes Magazine shows that you are just reiterating the capitalist bull shit! Slavery was outlawed years ago …….. $10.10 my ass!

    And NO, the problem will not correct itself except through a barrel of a gun!
    The power structure realizes this …… why do you think they are militarizing the police!

    • First of all, Forbes is changing – they are not the magazine they used to be. They are covering some very progressive issues and do support tackling income inequality.
      Now, as to living on $10 an hour – that is what’s in front of us right now. I don’t think that anything more than that will come up. As I pointed out, it only gets 10% of the poor out of poverty, which is hardly a big win.
      For the rest of it, including Glass-Steagall, I am totally with you on that. The Volcker Rule was a half-step that is now the law, again a half-measure. But it’s not enough, no. We need a LOT more reform and a LOT more effort towards creating the economy that we can all live with. But I don’t expect much from this congress at all.

  2. The comment section was broken again. Did everything freeze over up there in MN?
    A minimum wage is a tax on employment, no matter how you look at it. You said before that we should get rid of those to go to full employment, care to comment? It may be a good tax to have but it still has to cost jobs even if its only a few. I agree that to raise it 39% in one pass is a big jump & things may not work out like we expect.

    • I think it’s working again. Don’t know what happened, to be honest. But it is damned cold here!

      You’re right, it’s a tax on employment. And as such it probably does have to affect employment. But as taxes go it’s pretty small and only affects a small number of employees, so the net cost is really not that large except in some service industries. And in many cases it’s hard to hire fewer people because there is work that simply has to be done. So I think this is a rare tax on employment that doesn’t have too many negative effects.
      However, it also doesn’t fix everything. It’s not enough by itself, as I noted. Also, I do agree that a jump this large at once is not going to necessarily scale from data on smaller increases. There is a lot more that has to be done – but this would be a start. And the possibility that it might actually get through the US House is at least interesting.

  3. Thanks for the follow! Let us not forget that during the Bush administration republicans came together and voted to increase the minimum wage, so there is precedent, we should not stop pushing for them to join the prevailing consensus. 🙂 Wonderful and thoughtful blog and I enjoyed reading your post a lot. Keep warm in the upcoming weeks!

  4. Pingback: MN Minimum: Half a Cent per Buck | Barataria - The work of Erik Hare

  5. Pingback: End “Quarterly Capitalism”! | Barataria - The work of Erik Hare

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