A Living Wage as Economic Stimulus


To little fanfare, the federal minimum wage rose to $7.25 per hour July 24th. It was the third scheduled raise in the minimum wage since 2007. A higher federal minimum wage is the best kind of economic stimulus for working families, say workers’ rights advocates and even some business owners. But, they add, as it stands it has a long way to go to be high enough for working families to live on.

Greg Denier, spokesperson for the Change to Win labor federation, says CtW welcomes the raise and favors indexing it to inflation. “There needs to be a wage floor,” he contends. “Right now with inflation, the minimum wage continues to be inadequate” for a growing number of American working families.

AFL-CIO President John Sweeney says, 'As we bail out banks and corporate CEOs to the tune of billions of dollars, it’s time for those at the bottom of the pay scale to get a fair shake.' He adds that the raise will work like an economic stimulus “at a moment when it is critically needed – one that will lift all boats so Americans and businesses can stay afloat and ride out this economic storm.”

Still, Sweeney charges, 'the minimum wage is still far below what it takes for families to survive, but today’s increase moves us closer to a healthier economy that works for everyone.'

Department of Labor Secretary Hilda Solis commented in a press statement on the positive impact the raise would have for women workers. 'This well-deserved increase will help workers better provide for their families in the face of today's economic challenges,' she said. 'I am especially pleased that the change will benefit working women, who make up two-thirds of minimum wage earners.'

According to federal government data, some 4.5 million workers in 31 states were directly impacted by the mandated pay raise after July 24, and several million more workers will also benefit, according to the Economic Policy Institute (EPI). Some employers will give workers currently at the new federal minimum a raise as well. About $5.5 billion in additional consumer activity will also be generated by the raise alone, EPI reported.

'It's just not enough'

While this data suggest some good news, according to EPI, the buying power of the federal minimum wage is far lower than in past years. In 2008 dollars adjusted for inflation, the value of the 1979 federal minimum wage stood at $8.02, $1.47 per hour more than the current rate. Even with the raise on the 24th, millions of workers will have less buying power than the lowest-paid American workers did in 1979.

While fast-food worker Kayla Gordon isn't planning on turning the raise down, this 21-year old single-mother of a six-month old baby girl from Nashville, TN seems pessimistic about the impact the raise will have for her family. 'I think it's not really going to help anything. I'm living from paycheck to paycheck, and $6.55 or $7.25 is not helping at all,' she tells Political Affairs.

Gordon says that she often has to borrow money to buy household items and pay rent. She suggests that $9 or $10 is closer to what she needs.

Reverend Kate MacGregor Mosley, who works with the Georgia Minimum Wage Coalition in Atlanta and the national Let Justice Roll campaign, supports the creation of a minimum wage that helps working people be self-sufficient. While for her it is a moral issue that working families have financial security, it also makes good economic sense.

'Getting additional money through a sufficient minimum wage into the hands of the working poor is a good thing for the local economy,' says Mosley, a Presbyterian minister. 'that money cycles right back into our local communities immediately.'

Mosley says that based on her experience with the issue, she thinks low-wage workers need more than $7.25. 'It's just not enough for people to be self-sufficient,' she asserts. 'Getting it to $7.25 is a start, but we need to keep moving toward a wage that truly is a living wage; that, in my opinion, is at least $10.50 an hour.'

Some in business back a higher minimum wage

'A minimum wage increase at this time could be the most important factor in powering our economy out of the recession,' says Camille Caramor, owner of a paralegal service and Christmas tree farm in Louisiana.

Speaking on behalf of Business for a Fair Minimum Wage, Caramor adds, 'The higher the wage an employee receives, the more income he or she has to purchase goods and services for their family, which is indeed 'the best medicine' for our economy.”

US Women's Chamber of Commerce CEO Margot Dorfman also endorses a higher minimum wage. 'It is an unsustainable and dangerous downward spiral to push American workers into poverty and expect taxpayers to pick up the bill for the consequences,” she said in a recent statement.

'It's a myth that a minimum wage increase kills job development,' says Lya Sorano, founder of Atlanta Women in Business. 'To get out of this recession, we need more money to circulate. That happens when people get bigger paychecks, who today can't afford to buy the goods and services they need – goods and services from some of the same people who seem to be opposed to the increase.'

Almost 1,000 business owners have signed the Business for a Fair Minimum Wage statement urging a fair minimum wage that matches the needs of workers.

Low-wages deepened the recession

Living wage advocates tied higher wages for America’s lowest-paid workers to the hoped-for economic recovery. 'The minimum wage was enacted during the Great Depression to put a floor under workers' wages and stimulate the economy. We need that boost today,' says author Holly Sklar, senior policy adviser for Let Justice Roll.

For the past eight-plus years, economists have argued, workers’ real wages have remained stagnant or have fallen. 'The long-term fall in worker buying power is one reason we are in the worst economic crisis since the Depression,” Sklar notes. She favors boosting the federal minimum wage even higher. “Ten dollars in 2010 will foster a productive economy fueled by living wages rather than destructive debt and speculation.'

CtW spokesperson Greg Denier succinctly explains the recession this way: “The problem in the economy today is that productivity and profitability increased while paychecks shrank. We need to expand paychecks in order to expand the purchasing power of American workers.” He also links the fight to index the minimum wage to inflation with the push for health care reform and the passage of the Employee Free Choice Act (EFCA), a law that would remove barriers to union organizing. Each is an important tool for improving the financial stability of the working class and “the means to economic recovery,” as he puts it.

Eyes on the prize

The broad people's movement composed of labor and democratic forces that put Barack Obama in office last fall and handed the Democrats a historic majority in Congress won because of several factors. Not the least of which was the fact that the economic crisis revealed the bankruptcy of right-wing economic ideology pushed by the Republican Party. That economic philosophy contends primarily that what is good for business is good for all of us, e.g. dismantling government oversight of bank and lending practices to enrich bankers is good for Main Street. Unfortunately, it took the collapse of the financial sector and the subsequent economic collapse to figure out just how wrong that ideas is.

What they saw as 'good for business' was not only bad for workers, it was bad for business as well.

Right-wing economy theory also insists that low taxes for corporations and the rich as well as reduced government intervention in the economy and weak public programs spur economic growth. Indeed, proponents of this thinking have targeted the minimum wage not only for being artificially restrained but even for its outright elimination.

Despite the fact that Republicans and right-wingers have been strangling public programs, cutting taxes, holding the minimum wage down and eliminating government oversight for most of the past 30 years, their program failed to stop the current economic collapse, the worst, many believe, since the Great Depression.

Indeed, gutted anti-poverty and unemployment programs, stagnant wages, weak labor protections and declining health care coverage have extended the recession, as Denier rightly notes. In addition to turning around the economy, winning key reforms like health reform, EFCA and a minimum wage indexed to inflation are crucial often for even the barest survival of many working families, like Kayla Gordon's.

But the motive for winning the fight for these reforms doesn't end with the economic argument. This is a political struggle for democracy and the power of the working class, the overwhelming majority of people in our society. How can a society claim to be fully democratic when a handful of politicians decide to look the other way while a small clique of bankers rob us blind with impunity? How can we say we lead the world in democracy when a few hundred CEOs rake in more than one-third of the total national income, while tens of millions of working families struggle to make health insurance premium payments, doctors' bills, rent and house payments, college tuition payments or even just groceries for the week? Meanwhile, those same CEOs conspired in smoke-filled rooms to use their lobbying influence and wealth to stall passage of EFCA, which would help workers join unions and improve their standards of living.

These fights can be won, and they can be won this year with the balance of political forces in place now. Now is not the time to get squeamish or pessimistic. Now is not the time to become hypercritical of allies in the fight who do not always agree on the details of policy.

Now more than ever, let's keep our eyes on the prize.

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