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.
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.
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.
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.