by Research Associate Jonny Finity
As the US economy slips further into recession and more workers – with collars of every color – are faced with unemployment, many political leaders and media outlets are falling deeper into the quicksand of poverty rhetoric. Some policymakers read from their well-worn scripts, helpless in the face of economic decline, while the news media sprints to keep up with breaking stories of employers scaling back hours and pay, or hard-working families losing their jobs and falling through “the safety net.” But then, this is what happens during a recession, isn’t it? Spending is down, prices are up, and there’s little that anyone can do about it. In a souring economy, employers have no choice but to cut back their workers’ hours and wages…right?
On the contrary, say Eileen Appelbaum and Tsedeye Gebreselassie in a recent article in the New Jersey Star Ledger, raising wages – specifically, the minimum wage – is a key policy tool for helping low-wage workers, as well as the overall economy, to bounce back from just such a recession. They highlighted a recommendation coming out of New Jersey, where the current minimum wage is just $7.15 per hour, or $14,782 a year:
The state’s minimum wage advisory commission, chaired by Gov. Corzine’s labor commissioner…called on the legislature to restore New Jersey’s minimum wage to $8.50 – closer to its value before it started to slide – and to guarantee annual cost-of-living increases to prevent the minimum wage from falling each year.
We have already seen good evidence that the minimum wage doesn’t have the adverse economic effects its critics claim, and can actually have positive effects on the labor market, workers, and the overall economy. In fact, since the minimum wage acts as a floor for overall wages, raising it could go a long way in improving our long-term prospects for economic recovery. Over 40 million jobs – or about 1 in 3 – pay low wages of $11 or less, and this has been the case since even before the recession started. With an economy that’s so reliant on low-wage workers who often lack benefits, it’s no wonder that our economic success was so fragile. Raising the minimum wage would be sending a signal to the rest of the world that we are committed to turning things around. As the article’s authors say,
A strong minimum wage is not only crucial for helping low-income families make ends meet, it is one of the best ways to stimulate the consumer spending that drives the state’s economy. A minimum wage increase goes directly to those New Jerseyans who will spend it immediately – because they have to – on basic necessities like food, fuel, rent, clothing and transportation. A recent study by Federal Reserve Bank of Chicago economists confirmed that minimum wage increases boost consumer spending substantially more than tax cuts do. This is spending that goes directly into local businesses and the local economy.
So while low-wage workers may seem to be the ones benefiting from any increase in the minimum wage, the effects are far-reaching. Raising the minimum wage is good for our communities and local economies.
In fact, the minimum wage’s twin functions as cushion for working families and fiscal stimulus have been recognized from the beginning. As the nation struggled through the Great Depression in 1938, Franklin Roosevelt called for adoption of the first federal minimum wage as “an essential part of economic recovery.” By increasing the purchasing power of those workers “who have the least of it today,” he explained, “the purchasing power of the Nation as a whole – can be still further increased, (and) other happy results will flow from such an increase.”
We, especially our politicians and media outlets, should not look at a minimum wage increase as merely a job support for low-wage workers. It’s an effective policy lever that can help rebuild the economy from the ground up – the economy in which we all live and work. It is a policy that affects all of us.