The most amazing thing about politics is the ease with which different subjects enter and exit the national conversation. Last week President Obama used the State of the Union to address an issue of economic and moral concern: the minimum wage. In doing so, the president took advantage of an opportunity to achieve a political win for his base and build on the success of the Occupy movement in bringing income inequality back into the national conversation, while actually doing something to work to remedy the problem.
The minimum wage laws, in existence since the 1930s, were most recently voted on in 2007, when the minimum wage increased from $5.15 to $7.25 an hour. This bill was voted against by John Boehner, the U.S. representative from Ohio’s eighth congressional district and current speaker of the House, but was passed later nonetheless. Unlike most of the economy, which rises with inflation, the minimum wage has never been indexed to inflation, so its value does not rise with the price of goods, in effect decreasing its value annually.
Last week President Obama made a national call to raise the minimum wage: “Today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, 19 states have chosen to bump theirs even higher.”
“Tonight, let’s declare that in the wealthiest nation on earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour … Working folks shouldn’t have to wait year after year for the minimum wage to go up while CEO pay has never been higher. So here’s an idea that Governor Romney and I actually agreed on last year: let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.”
President Obama’s call to raise the national minimum wage from $7.25 to $9 an hour poses an interesting question: can businesses handle this 24 percent increase in the minimum wage? While the Wonk Blog of the Washington Post says that economists disagree about whether the minimum wage increases unemployment, Speaker Boehner shot back following the speech: “Listen, when people are asking the question ‘Where are the jobs?’ why would we want to make it harder for small employers to hire people?”
While my first inclination is to question the speaker’s insincere obsession with the deficit, the obvious response on the left is that the marginal propensity to consume of the poor is so much greater than that of the rich, that the overall increase in consumption should dictate that firms need to produce more and thus jobs should stay about the same.
Beyond this, I am also drawn immediately to the moral duty to increase the minimum wage. The American dream and our national identity are based on this infallible concept of fairness, that everyone gets the same shot and that we’re all in this together. This is cited in political rhetoric across the spectrum, whether it be Democrat or Republican, rich or poor. It is this trust that holds a country together and because of such, it is this trust that seems to be on the path to ruin if substantial measures aren’t taken to right the growing levels of inequality here.
According to professor Salvatore Barbones, the minimum wage adjusted for inflation was at its highest value in 1968, at $1.60, worth $10.55 in today’s dollars. He goes on to make a stronger call for greater equality through the minimum wage, “If our standard for minimum wages had kept pace with overall income growth in the American economy, it would now be $21.16 per hour … I grew up on the idea that America stood for progress, continual progress toward a better society. Even a $21.16 minimum wage wouldn’t represent progress. It would mean socially standing still, just with better technology and higher productivity levels.”
With income inequality at a stark rise since the 1970s, these levels of inequality only increased with the economy crashing. As Mother Jones Magazine shows, from 2007-09 Wall Street profits rose 720 percent while the unemployment rate increased 102 percent and the average home equity of Americans decreased 35 percent. At some point we actually have to stop this trend of middle class wages stagnating while the rich get richer.
Raising the minimum wage $1.75 and indexing it to inflation seems like a simple start.