[fblike]
Since 2009, the federal minimum wage has been $7.25. The last time that Congress voted for a minimum wage increase was 2007, which occurred in the aftermath of the Democrats winning control of both houses of Congress for the first time since 1995. During last year’s State of the Union, President Barack Obama called for increasing the federal minimum wage and reiterated his support for this on December 5th. President Obama has supported a phased-in minimum wage hike to $10.10, which would go into effect in 2015. Congressional Democrats have supported the President’s plan and argue that a new minimum wage hike should also be indexed to inflation to ensure that minimum wage gains are not eventually diluted by depreciation. With twenty-one states having higher minimum wage levels than the federal government and recurring strikes taking place in the fast food industry, a topic that Extemp Central broke down a few months ago, the debate on a new minimum wage hike could impact the 2014 midterm elections by putting economic inequality back into the national spotlight.
This topic brief will provide extempers with a brief history of the minimum wage, break down arguments for and against raising the minimum wage, and discuss how it could potentially shape the outcome of the 2014 midterm elections.
Readers are also encouraged to use the links below and in the related R&D to bolster their files about this topic.
The Minimum Wage: A History
Calls for a minimum wage grew out of the concentration of wealth in the late nineteenth century by “robber barons” and industrial capitalists who profited from the Second Industrial Revolution. Taking advantage of a large workforce, composed of migrants from rural areas and former artisans who were forced out of business by cheaper, mass produced products, businesses paid workers what they wished to work long hours and under poor working conditions. The Progressive Era of the early twentieth century saw reformers champion the idea of paying a decent wage to workers and that a floor, which in economic terms means a minimum, should be placed on wages. These reformers argued that with a minimum wage, workers would have money to put into the American economy and that it would stop some of the abuses of the factory system, whereby women and children were used by some industries, like the textile industry (especially in the American South), instead of men because they could be paid less.
The first national minimum wage in history did not originate in the United States. It actually came from New Zealand, who in 1894 enacted the first national minimum wage law in history. These laws saw the New Zealand government work with businesses to set a minimum wage for workers, which mirrored the business-government cooperation that was standard for the time period. American reformers sought to enact minimum wage laws at the state and local level during the 1910s, but they faced a hostile court system that refused to allow a minimum wage floor to apply to all workers. Reformers were forced to use an “entering wedge” strategy by pushing for minimum wages for women and children, deemed as the most vulnerable groups of the industrial era, and the Supreme Court found that these so-called “protective laws” were constitutional. It would take until the Fair Labor Standards Act of 1938 for there to be a national minimum wage standard. The Supreme Court would find this to be constitution in U.S. v. Darby Lumber Company in 1941.
Since 1955, there have been nineteen increases in the federal minimum wage, which the last increase coming in 2009, when the minimum wage grew from $6.55 an hour to $7.25. Prior to the 2007 phased-in minimum wage increase, the national minimum wage between 1997-2006 had been $5.15 an hour and as gradual inflation took place in the economy the purchasing power of minimum wage earners declined. Although economists disagree over the impact of minimum wage increases, which will be discussed in the next section, they do agree that gradual minimum wage increases do little economic damage and are necessary in order to make sure that workers purchasing power does not significantly decline because of inflation.
The Pew Research Center on December 4th provides some solid facts and insights into the minimum wage and it is a useful article that extempers should file. For example, over 50% of the 3.55 million American workers that are working at or below minimum wage (one can work below minimum wage if they are in an industry that pays tips like being a server at a restaurant – hence why you should always tip if you go to a restaurant at speech tournaments!) are between the wages of 16-24 and nearly 23.2 million Americans work in low-wage occupations, which are defined as making less than $10.15 an hour. These include those in retail sales, cashiers, fast food workers, and waiters.
Extempers should keep in mind that not all countries have a minimum wage standard. For example, nine of the twenty-seven nations that are members of the European Union do not have a minimum wage. However, some of these countries like Germany tend to have stronger collective-bargaining rights for labor unions, which work with management to set minimum wage standards. Extempers should also keep in mind that many American states have minimum wage laws as well and twenty-one states and many municipal areas have higher minimum wages than the federal government. This makes sense when one considers that the cost of living is different in cities, states, and regions throughout the country.
Arguments For and Against a Minimum Wage
Extempers should always be on the lookout for minimum wage questions, especially when there are times, like now, when public policy discussions and interest groups champion a minimum wage increase. They are easy fodder for extemp question writers who sometimes find generating more than fifteen economic questions difficult. Typical minimum wage questions range from “Should the minimum wage be increased?” to “Would raising minimum wage to (insert amount) have a positive or negative impact on the economy?” You may also be asked to give your opinion on what the federal minimum wage standard should be, which makes understanding arguments for and against raising the minimum wage important.
However, understanding how the minimum wage impacts the economy is a messy business because esteemed economists disagree about whether the minimum wage is helpful or damaging to a nation’s economy. Supporters of a minimum wage, which side with labor groups and progressives, argue that raising the minimum wage can have positive economic impacts. For example, U.S. News and World Report on December 9th indicates that 70% of the American economy is driven by consumer spending. Extempers should keep this statistic in mind for rounds because bolstering consumer spending is one of the primary concerns of federal economic policymakers. It is why the stimulus plan in 2009 sent checks to American taxpayers and it is one of the justifications for tax cuts. U.S. News and World Report also contends that when the government fails to raise the minimum wage that it provides a subsidy to private corporations to the tune of $7 billion. This subsidy is provided through government programs like food stamps, Temporary Assistance to Needy Families (welfare), Medicaid, and other benefits that serve to help workers that are in minimum wage jobs and cannot support their families with a living wage. These economists argue that raising the minimum wage will raise the standard of living for workers and decrease the amount of taxpayer dollars going to poverty assistance programs. The New York Times explains on December 13th that a worker on a minimum wage job makes $15,080 a year, which is 19% below the poverty line for a family of three and that 50% of families of fast food workers are enrolled in at least one public assistance program. Another argument by those that support a minimum wage increase is that America has a growing income gap problem, which has gotten worse in the “Great Recession.” The Atlantic of December 7th explains that wages for American labor have grown stagnant and the top 10% of wage earners in the United States have increased their share of national income from 33% in 1970 to 50% today. The top 1% of Americans also controls 20% of the nation’s wealth. Increasing the minimum wage would provide some form of wealth redistribution as corporations would have to share some of their wealth with the working class, but these economists contend that this would not produce harmful economic consequences. Instead, they argue that businesses would help themselves by paying workers more because workers could then buy more products in the economy. This argument has a historical parallel as Henry Ford increased wages at the Ford Motor Company in the early twentieth century so that his workers could afford to buy an automobile. This made the repetitive work at the Ford Motor Company tolerable and created the foundation for the company’s domestic success. Finally, as The Economist points out on December 14th, supporters of a minimum wage contend that the minimum wage has not kept up with productivity gains in the economy. Since the minimum wage is not indexed to these gains or inflation, the value of the minimum wage peaked in 1968, where it stood at $8.56. The leftist Centre for Economic and Policy Research (CEPR) contends that if minimum wage gains mirrored economic changes in the economy that the minimum wage would now be $21.72, which is nearly triple the current level.
Opponents of a minimum wage increase contend that government interference in wages is an unwarranted intrusion of the government into the private sector and that it damages job growth. The first argument of opponents of the minimum wage, which come from conservative and libertarian-type economists, is that minimum wage jobs are not meant to be permanent. Many minimum wage jobs are entry-level positions and a place for workers to gather new skills and/or work experience. Opponents of the minimum wage contend that if the cost of hiring these types of workers becomes prohibitive that businesses will hire fewer of them or eliminate these positions altogether, which will hurt young people that need these jobs to acquire a foothold in the economy. They also contend that a minimum wage increase that applies to low-skilled workers produces inflation because workers in skilled professions can demand higher wages because their skills have more economic value than those lower on the economic totem pole. For example, as I noted in the fast food strikes topic brief, if fast food workers successfully obtain their goal of making $15 an hour they would make more than preschool teachers, barbers, tailors, insulation workers, clerical workers, home health aides, bailiffs, correctional officers, childcare workers, and emergency dispatchers. People in these professions, and many others, would demand higher wages to compensate for the $15 wage of fast food workers, since they would contend that their education and skills demand such an increase and this could fuel an inflationary cycle in the economy that may suddenly make $15 an hour not go as far as it used to. Some economists argue that the minimum wage should be eliminated altogether with Edmund Phelps, the 2006 Nobel prize winner in economics and director of the Center on Capitalism and Society at Columbia University, arguing that the federal government should pay subsidies to businesses that hire low-wage workers. His argument, explained in The Washington Post on December 11th, is that businesses need to hire more workers, especially from minority communities, and that the minimum wage rarely leads to hiring increases. However, his subsidy idea has been attacked by other economists that fear it would lead to a “race to the bottom” by industries to hire people at low wages to attract a higher government subsidy. Other economists, as The Week explains on December 6th, argue for a basic income policy to replace the minimum wage whereby the minimum wage is abolished and workers make what the market will pay them and a negative income tax is used to provide workers with a sustainable wage from the government. They also contend that minimum wage could be replaced with a universal income policy, where all workers, regardless of income, from Bill Gates to the poorest American, would receive a payment from the government to ensure a living wage. Finally, economists warn that if the minimum wage is tied to inflation, which Congressional Democrats support, then it could do great harm to the private sector. The Huffington Post of December 10th and Roll Call of December 6th concur by arguing that an indexing could create headaches for businesses that engage in long-term planning for wages, hiring, and benefits. Conservative and libertarian economists postulate that the real problem in the U.S. economy is that there are not enough job opportunities, not workers wages, and they point out that labor force participation is at a forty year low.
As these explanations illustrate, the economic world is very divided on how a minimum wage hike would impact the economy, but there does appear to be some consensus that a gradual increase in the minimum wage would not be harmful. The New York Times previously cited explains that some studies, albeit conducted by leftist economists, contend that raising the minimum wage by 10% would not greatly harm the economy. It also points out that a survey of leading economists saw only 33% of them believe that an increase in the minimum wage to $9 an hour would harm the employment prospects of low-skilled workers and 50% of economists surveyed believe that even if there are negative economic costs to raising the minimum wage that it is still worth pursuing.
The Political Impact of a Minimum Wage Increase
As extempers are aware, the federal government is deadlocked and the prospects for any increase in the minimum wage before the 2014 midterm elections is likely impossible. In response to the gridlock in Washington D.C., states and municipalities are pursuing their own minimum wage increases. The Atlantic on December 11th explains that SeaTac, a Washington town that has a major airport, recently approved of a $15 minimum wage for airport and restaurant workers. This would be the highest municipal minimum wage in the country and The Economist previously cited notes that Seattle may vote to increase its minimum wage to $15 next year. The Associated Press on December 4th explains that Washington D.C.’s city council has also approved of a $11.50 an hour minimum wage and has worked with surrounding counties to ensure that they also increase their minimum wages so that businesses cannot easily relocate to another area. The Los Angeles Times of December 8th explains that California, New York, New Jersey, Connecticut, Rhode Island, and four local governments this year approved of minimum wage increases and five more states, including Maryland, South Dakota, and some other cities will take up ballot initiatives or legislation to increase their minimum wages next year. This action on the state and local level has prompted some economists to push for local minimum wage standards, contending that even if the federal minimum wage increases to $10.10 that it will largely ignore workers in the nation’s largest metropolitan areas. The Atlantic on December 11th argues that advocates of the minimum wage should concentrate on the local level, but the problem with just doing a local minimum wage is that it could drive businesses to other cities that are less costly or cause cities to “race to the bottom” on wages.
President Obama is hoping that the minimum wage issue can galvanize the progressive base of the Democratic Party and turn voters out to the polls in the 2014 midterms, where it is expected that the Republicans will retain control of the House of Representatives and gain some Senate seats, although it is not yet certain that the Republicans will gain enough Senate seats to control the chamber. Talking Points Memo on December 14th argues that ballot initiatives for minimum wage increases may help some vulnerable Democratic senators retain their seats in red states in 2014. Some of these states that will feature ballot initiatives include Alaska, Arkansas, and South Dakota, all of which voted heavily for Mitt Romney in the 2012 presidential election. Labor groups in these states are pushing ballot initiatives because they argue that is the best way to get around Republican state legislatures. South Dakota’s and Arkansas’s initiative would raise their state’s minimum wage from $7.25 to $8.50 an hour, whereas Alaska’s would raise the state minimum wage from $7.75 to $9.75. Labor groups expected some of the Republican challengers in these states to oppose the initiatives and hope that it might swing moderate and swing voters into the Democratic column. While this has been the case in Arkansas, where the Republican frontrunner Tom Cotton has opposed the minimum wage increase, it has not necessarily worked in South Dakota where Republican frontrunner, former Governor Mike Rounds, has supported a minimum wage increase.
Public polling on the issue has illustrated that it is a danger for conservatives and Republicans to oppose a minimum wage increase, although there are some nuances in the polling that Republicans could exploit to their advantage. Reason on December 13th breaks down some polling data and shows that 58% of Americans do not believe that raising the minimum wage will harm jobs, while 39% say that it will. 72% of Americans believe that raising the minimum wage would be positive for the country, but 57% oppose it if it ends up reducing employment. In fact, 58% of young people, 61% of blacks, and 52% of women oppose raising the minimum wage if it harms employment prospects. One of the most interesting elements of the poll, though, is that there appears to be a bipartisan agreement when it comes to raising the minimum wage if job losses are not considered. For example, 88% of Democrats, 70% of independents, and 55% of Republicans support raising the minimum wage. This provides some room for the Democrats to appeal to a wider group of voters because the thought of raising the minimum wage generates positive feelings. However, Americans are less convinced that minimum wage jobs are the bedrock of the American economy, as only 25% of Americans view them as ways to support a family. 61% of Americans see minimum wage jobs as temporary positions and two-thirds of white and Latino voters feel this way versus blacks, who are evenly divided on the issue. Therefore, it appears that in the abstract Americans support a minimum wage increase, but when it comes to sympathy with low wage workers or weighing the economic impacts they are less enthused about the prospect.
President Obama is also facing some liberal criticism of his domestic policy agenda, which has stalled over the last year due to problems with healthcare.gov, a domestic scandal involving the Internal Revenue Service (IRS), and revelations from Edward Snowden about the scale of the National Security Agency’s (NSA) spying activities. Roll Call of December 6th notes that in light of budget agreements that Congressional Democrats and President Obama have had to make with Republicans, they are going to have to prioritize their support for certain poverty programs. Food stamps are facing a cut in the next farm bill and a budget deal between Representative Paul Ryan (R-WI) and Senator Patty Murray (D-WA) does not extend unemployment benefits, which could impact nearly five million Americans in 2014. President Obama is also wanting to push immigration reform, but that idea appears to be dead in the House of Representatives before the next midterm election, much to the chagrin of liberal lawmakers. Since President Obama has resorted to executive orders to implement some of his domestic policy agenda in the face of a deadlocked Congress and has signed 139 of them during his presidency to modify welfare reform, limit gun violence, and modify immigration enforcement, his supporters want him to use this power to handle the minimum wage. The Roll Call article previously cited explains that Representative Raul M. Grijalva (D-AZ) and Representative Keith Ellison (D-MN) want President Obama to unilaterally raise the minimum wage via executive order by having a $10.10 minimum wage affect all federal contracts. However, it is doubtful that President Obama will take this step since previous minimum wages have all been passed by Congress and it could be construed by his critics to be a usurpation of the democratic process. With the President reeling from the botched rollout of the Affordable Care Act it is unlikely that he will want to involve himself in another fierce partisan battle ahead of the 2014 midterms, but is very likely that President Obama will reiterate his push for a higher minimum wage at next month’s State of the Union and probably hopes that it can generate some positives stories for the administration that can overshadow a rough 2013.
Overall, it appears that a federal minimum wage increase will likely await the outcome of the 2014 midterms. If the Republicans gain control of Congress the idea may be mute, which would leave it to states and municipalities to set their own minimum wage legislation. A divided Congress may see some traction on a minimum wage bill, but with the Tea Party in staunch opposition to a minimum wage increase it is unlikely that it would pass the House. Nevertheless, if Republican legislators have to hedge their bets on the minimum wage to gain control of the Senate and/or keep the House, a bipartisan agreement after the midterms, which could produce a modest minimum wage increase near $9 an hour, is a possibility. That is short of the $10.10 that the President is seeking, but it would constitute a small victory in the highly charged partisan atmosphere of Washington D.C.