A government-mandated minimum wage is nothing new. In 1894, New Zealand established wage arbitration boards, which set the minimum wages, to be followed in 1896 by Australia. The United Kingdom got into the act in 1909. In 1912, Massachusetts was the first U.S. state to establish a minimum wage.
In the 1930s, the United States was recovering from the Great Depression, and most people were poor. The U.S. Congress established the first national minimum wage of 25 cents per hour in 1938. When controlled for inflation, the 1938 minimum of $0.25 per hour was equal to $4.06 today, which would leave a family of two with an income of $8,445 in today’s dollars. The 1938 minimum wage still left people well below the poverty line. Since then, Congress has raised it 22 times – the last increase was in 2009 to $7.25 per hour.
Without an increase, inflation has and will continue to erode the purchasing power of the minimum wage. According to the U.S. Congressional Research Service, Congress would have to raise the current minimum wage to $10.69 to have the same purchasing power it had in 1968, when the minimum wage was $1.60.
Globally, about 90 percent of countries have some sort of minimum wage. Often, they are not set by legislation but are the result of negotiations among the parties involved. According to The Washington Post, when ranking minimum wages, the U.S. ranks seventh, just behind Japan and ahead of Spain. Australia tops the chart at $16.88 per hour (in 2013 U.S. dollars), followed by France at $12.09, New Zealand at $11.18, the UK at $9.83, Canada at $9.75 and Japan at $8.17.
Almost any discussion of a minimum wage will involve pros and cons.
On the pro side, the arguments are:
An increase in the minimum wage will pull many workers out of poverty because the minimum wage has not kept up with inflation.
Poor people tend to spend most or all their money, creating a ripple effect that spreads wealth across the community, thus benefiting everyone.
Gradually increasing the minimum wage will lessen the impact on unemployment.
The cost of government aid programs would be reduced by higher wages as fewer people would qualify for assistance.
On the con side, the arguments are:
If employers cannot afford to increase pay, they may have to lay off workers.
Entry-level jobs – needed by young people entering the labor force – will decrease.
Employers may automate low-skill level jobs.
Prices may have be raised to provide money for the minimum wage.
Employers may have to postpone or eliminate raises for higher-paid workers
According to the Bureau of Labor Statistics, 2 percent of American workers earn the minimum wage and another 2.3 percent earn below the current minimum wage of $7.25 (these are jobs exempted from the minimum wage, such as tipped workers). The Congressional Budget Office (the economic research arm of Congress) estimates that if Congress were to raise the minimum wage to $10.10 as proposed by President Obama, total employment would decline by about 500,000 workers or 0.3 percent. At the same time, as many as 3 million low-wage workers would enjoy a pay raise. Presumably, the 500,000 now unemployed workers are in the low- or minimal-skill category. Congress will have to weigh the increased unemployment against the increased income for 4.3 percent of the workforce.
All one has to do is look over the local or online employment advertisements to conclude that low-skilled workers are going to have an increasingly difficult time finding employment. Low-skill positions pay only or slightly more than the minimum wage. This suggests that as a society we need to support training that will give people the skills they need to qualify for higher-paying jobs. Ironically, employers often find themselves struggling to pay more than the minimum wage, while at the same time have difficulty filling highly skilled positions.
Congress should increase the minimum wage as proposed by President Obama. In addition, it should provide funds for increased job training to help workers qualify for better paying jobs, while helping employers fill their empty high-skilled jobs.
Ron Garst holds a doctorate degree in geography. He retired as provost at the National Intelligence University in Washington, D.C., and is a supporter of the La Plata County Thrive Living Wage Coalition. Reach him at email@example.com.