The Senate voted down two bills last week that would have increased the federal minimum wage. One bill would have generated an increase from the current rate of $5.15 to $6.15 an hour, while weakening overtime protections for workers; the other would have increased the minimum more significantly (up to $7.25 over about two years) without weakening protections.
By voting down these provisions, the Senate has refused to undertake a fairly quick and painless first step to address the problem of low worker wages in America. The current federal minimum wage has fallen to less than one-third of the average wage of U.S. workers – its lowest ratio in over 50 years. At this current low level, the federal minimum directly affects only about 2 percent of all workers, thereby providing less protection than at any time in recent decades.
This is ironic, because we now should be doing much more, not less, to improve the earnings and incomes of low-wage workers. The decline of minimum wage and union protections, in addition to broader economic forces like new technology changes and globalization, have all conspired to reduce the earnings of low-wage workers – especially in comparison to the middle and upper ends of the earnings spectrum.
Yet the number of low earners in the U.S. has grown dramatically over time. During the 1990s, we reduced the welfare rolls by about 60 percent, and pushed over two million low-income mothers into the low-wage labor market. Legal immigrants have swelled the low-wage payrolls as well. And millions of native-born Americans who have never received welfare struggle at low wages to meet the costs of providing basic housing, food, child care, and health care for their families.
Labor market earnings have fallen so low that disadvantaged young men, particularly minorities, frequently drop out of the job market altogether. The costs that their nonemployment and poverty impose on children, neighborhoods, and our nation are simply staggering. Worse yet, if these young men turn to crime and become incarcerated, their future employment options will be severely and often permanently curtailed.
Would higher minimum wages have helped these groups? To a limited extent, the answer is yes. While some minimum-wage earners are middle-class teenagers, about 70 percent are now aged 20 or above. It is clear from a number of studies that most of the higher earnings created by raising the minimum wage would accrue to families with below-average incomes. And recent evidence suggests that modestly higher minimum wages would cause little or no loss of employment, especially if labor markets tighten up over the next few years.
Absent higher minimum wages, what else can we do to help these workers? Improvements in education and worker training are critical for achieving labor market success. But researchers remain uncertain about which education reforms really work; and these do nothing to help those already out of school. Efforts to improve the academic and work-related skills of youth and adults are essential, and some programs (like Career Academies and Job Corps) are clearly cost-effective. But public funding for many such efforts has diminished over time, and will face further cuts in light of the administration's proposed FY 2006 budget. Even funding for the popular Pell Grant program, which helps finance college education for the poor, has failed to keep up with the growth of the low-wage population.
While no single "magic bullet" can fully improve workers' outcomes, a range of approaches taken together can certainly make a significant difference. Publicly funded education and training programs with proven track records could be expanded – especially since their impacts on the overall federal budget are miniscule. Employers that provide better advancement opportunities for less-educated workers – through apprenticeships and internships, career ladders, and the like – can be encouraged and supported through tax credits and technical assistance. The Earned Income Tax Credit (EITC) and other supports for low earners can be extended. And even those with criminal records can be helped in the job market, through targeted services and reviews of legal barriers to work that many states have enacted in recent years.
The federal government just missed an important opportunity to make a minimum wage increase the first step in this process. State governments can still do so and many have, with New York being the latest (after Florida and Nevada) to surpass the federal minimum wage. Before the private and public sectors are moved to take wholesale action, perhaps acknowledging the severity of the low-wage problem for millions of workers and their families – and the need to make it a national priority – is the best place to start.
Harry Holzer, formerly chief economist for the U.S. Department of Labor, is a professor of public policy at Georgetown University and author of Moving Up or Moving On: Who Advances in the Low Wage Labor Market (Russell Sage Foundation, 2004). Professor Holzer is also a member of our Academic Advisory Committee.
This commentary was originally distributed by Knight Ridder/Tribune Information Services.