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My Turn: The case for raising the minimum wage



Last modified: Sunday, October 26, 2014
Bruce Berke’s “My Turn” piece in last week’s Sunday Monitor arguing that a minimum wage increase would be “nothing but a job killer,” calls for a response. Bruce is a good personal friend, but on this issue we fundamentally disagree.

Alone among New England states, New Hampshire has no minimum wage of its own (it was repealed by the Bill O’Brien Legislature in 2011). The result is that New Hampshire defaults to the federal minimum wage of $7.25 per hour, making us the lowest minimum wage state in the region.

There are at least three good reasons for re-establishing our own state minimum wage and increasing it to $10 an hour in three annual steps – first to $8, then to $9 and finally to $10.

First, over the medium term, it would increase consumer demand, give the economy a shot in the arm and lead to more jobs, not less. Second, it would reduce welfare payments directly and taxes indirectly. Third, it would be the right thing to do for New Hampshire’s working families, who, after accounting for inflation, have not had a raise in a long, long time.

Jobs

Berke argues that “study after study and the basics of economics” tell us that raising the minimum wage would “hurt the employees it is ostensibly designed to help, while also hurting their employers.”

We don’t need to be Pollyanna-ish about this: An increase in New Hampshire’s minimum wage would doubtless cost some jobs at the outset. It would also initially put pressure on small businesses that pay the minimum wage to some of their employees, since not all of them would be able to raise their prices quickly to cover their higher wage costs. But the short-term loss of a few existing jobs to create many more new ones over the medium term is a policy choice I would make as a state legislator.

And if, as Berke suggests, most minimum-wage earners are not family breadwinners but “teenagers and young adults working part time,” then the worst effects on small businesses could be reduced through a “training wage” exception to the minimum wage, at, say, $8 an hour.

‘Studies’

Advocates of a point of view can generally find – or commission – a study to prove whatever point they want to make. (Opponents of an increase in the minimum wage have certainly relied heavily on studies funded by the Heritage Foundation and the American Legislative Exchange Council – mouthpieces for the Koch Brothers and other large corporate interests.)

Berke cites a February 2014 study by the Congressional Budget Office projecting that an increase in the federal minimum wage from $7.25 to $10.10 per hour could cost as many as 500,000 jobs nationwide.

However, he fails to mention the numerous other studies indicating that most leading economists now agree that modest increases in the minimum wage have a negligible effect on employment, and that the benefits of raising and indexing the minimum wage outweigh the costs. (See, for example, a Feb. 26, 2013, survey conducted by the IGM Forum at the University of Chicago Booth School of Business.)

The most credible study I’ve seen recently is a 2010 comparative analysis of nearly two decades’ worth of data from “contiguous counties” in adjacent states, by Arindrajit Dube of UMass Amherst, William Lester of the University of North Carolina at Chapel Hill and Michael Reich of the University of California at Berkeley (“Minimum wage effects across state borders: Evidence from contiguous counties,” in the November 2010 issue of the Review of Economics and Statistics), summarized by Dube in the Dec. 1, 2013, New York Times.

The study compared economic growth in counties of states that had raised their minimum wage with economic growth in adjacent counties across the border in states that had not (including New Hampshire versus Vermont and Massachusetts).

The three economists found that while increases in the minimum wage universally raised incomes of low-wage workers, a 10 percent increase (comparable to the annual steps in the increase suggested above) had “no detectable impact” on employment in the restaurant and retail industries, where low-wage workers are concentrated.

The ‘basics of economics’

Contrary to Berke’s suggestion about the “basics of economics,” the results of the contiguous county study would not surprise economists. Somewhere near 70 percent of the American economy is driven by consumer spending. If consumers buy only what they absolutely need in order to survive because they are strapped for cash, consumer goods go unsold, inventories pile up, the economy stays flat, and employers have no reason to hire more workers – which is exactly what we have seen in this sluggish recovery from the Great Recession.

But if minimum wage earners get an increase in pay, their employers and other companies will generally raise compensation for better-paid workers as well, on up the line, in order to keep the good workers they have. The result is that everyone has more money to spend. When consumers have more to spend, they buy more consumer goods, reducing inventories and giving companies a reason to hire more workers to keep up with increased demand.

Economists refer to this phenomenon as a “virtuous cycle.” Henry Ford understood it – he knew that Ford Motors would be more profitable if he paid his employees enough to buy the automobiles they were producing on his assembly lines. A rising tide does lift all boats – and despite one of the lowest unemployment rates in the country (4.3 percent), New Hampshire still has a lot of boats in need of a lift.

Taxes

No one can reasonably be expected to live on $7.25 an hour – not even a single young adult, let alone a single mom with two kids or a bread-winner for a family of four. (One-fourth of minimum wage earners nation-wide are parents, according to the Feb. 9 New York Times.) So most minimum wage earners quickly learn to rely on public assistance programs funded by taxes – including food stamps, temporary assistance to needy families, housing subsidies, winter fuel assistance and various other forms of welfare.

Former State Rep. Doug Hall analyzed a real life example in a Monitor “My Turn” piece on May 4: A single mother with two children who lives in the Concord area and is paid $10.25 an hour (considerably more than the $7.25 minimum wage) makes ends meet only by resorting to five different public assistance programs – the Earned Income Tax Credit, Section 8 rent assistance, food stamps, LIHEAP fuel assistance and Medicaid health insurance. Through no fault of her own, she is forced to rely on public assistance funded by taxes.

What should be of even greater concern to all of us as taxpayers is that some large corporations (for example McDonald’s and Walmart, owned by the six Walton heirs, who are among the 10 wealthiest individuals in America) pay their employees so little that they compensate by coaching them on how to apply for various public assistance programs (“Welfare benefits for big business,” by Casey Mulligan in the Dec. 25, 2013, New York Times).

So middle-class New Hampshire taxpayers end up subsidizing the bottom lines of some of America’s largest corporations, owned by some of its wealthiest individuals. Is that really what we want?

The fairness issue

Although the productivity of American workers has almost doubled since 1968, the income benefits resulting from these productivity gains have gone overwhelmingly to those at the very upper end of the income scale – in profits to shareholders, executive pay increases and annual compensation paid to hedge fund managers and other Wall Street traders. After accounting for inflation, the average American worker hasn’t had a real pay increase in several decades.

Janet Yellen, chairman of the Federal Reserve Board (and no slouch of an economist herself), warned last week in Boston of the rising risks of income inequality in the United States. She noted that the average net worth of the bottom 50 percent of American families was $11,000 in 2013 – half as much as in 1989, adjusted for inflation.

Isn’t it time to give New Hampshire’s working families a raise?



(Howard Moffett represents Loudon and Canterbury – Merrimack District 9 – in the state House of Representatives. He holds a master’s degree in economics from Cambridge University in England.)