Pro & Con: Should the minimum wage be indexed for inflation?

From 2007 through 2009, the nation’s lowest paid workers received long modest, long overdue increases in their paychecks each July. In 2007, Congress finally raised the federal minimum wage from $5.15 to $7.25 an hour, phased in over three years.

But this year workers will get nothing. The federal minimum wage will once again be flat unless Congress takes action again.

Until 2007, the federal minimum wage had been stuck at $5.15 an hour for 10 long years. The federal minimum wage for tipped workers like waitresses and carwash workers is even lower. It’s been frozen at a meager $2.13 an hour since 1991.

For the child care worker who watches your toddler and the waitress at your local diner, the minimum wage plays a big role in setting their pay scales.

That’s why farsighted business leaders like Costco’s CEO Jim Sinegal support raising the minimum wage to help America’s working families.

That’s why this summer the Georgia Minimum Wage Coalition has trained college interns at DOOR Atlanta to teach more than 200 high school students on mission trips to Atlanta about the struggle of Georgia’s minimum-wage workers.

Our goal is to help these students recognize that families can’t make ends meet with wages that remain stagnant year after year.

The solution to this problem is straight-forward: Stop making the minimum wage a political football. Simply “index” it, so that it is automatically adjusted each year to keep up with the cost of living.

Indexing is already the law in 10 states. Workers in those states see a small automatic bump in their wages every year, helping families keep from falling further behind on basic expenses.

Florida has indexed its state minimum wage. Georgia isn’t. So while janitors and elder care workers in Jacksonville will be getting a raise Jan. 1, the same workers in Valdosta won’t.

In fact, Georgia’s state minimum wage is still $5.15 an hour, meaning that workers not covered by the federal minimum wage can still be legally this poverty wage in our state.

HB 290, introduced by Rep. Doug McKillip (D-Athens) would raise Georgia’s minimum wage to the federal rate of $7.25 an hour and index it to the cost of living. Despite broad public support to raise the minimum wage, the bill has yet to receive a hearing in the House committee.

This is really a shame. Fixing the minimum wage is not only vital for working families — it’s key to restoring consumer spending that our economy needs to grow.

A strong minimum wage puts money into the pockets of low-income families who spend it in their local communities, increasing local buying power on which our economy depends. According to the Economic Policy Institute, last year’s rise in the minimum wage (from $6.55 to $7.25 an hour) generated $5.5 billion in new consumer spending.

It’s not just the economics of a higher minimum wage that make sense.

It’s also simply the right thing to do, for our neighbors who are working hard and still struggling to stay afloat.

During these summer months, when many churches will spend so much to serve others on mission trips around the world, I pray that the faith community can mobilize around this crucial issue — one that is well-reflected in the second half of Jesus’ greatest commandment to “love the Lord your God with all your heart, mind and soul and love your neighbor as yourself.”

The Rev. Stephanie Coble Hankins is an ordained Presbyterian minister with the Georgia Minimum Wage Coalition.

NO: Indexing will push more teens to the unemployment line.

By Michael Saltsman

In an effort to help economically poor families make ends meet, some Georgia legislators proposed indexing increases in the minimum wage to inflation. The idea is that low-income Americans should see their wages go up when basic necessities like gas and food become more expensive.

But there are a few problems with their plan: Economists have shown that indexing the minimum wage to inflation does little to help raise the wages of poor families or alleviate poverty and will cost many teens currently earning the minimum wage their jobs.

Let’s understand one thing: According to Census Bureau data, 85 percent of Americans earning the minimum wage are young adults living at home (42 percent), childless adults (25 percent) or married adults that were secondary earners (18 percent). And low wage does not mean poor. The vast majority of families who see the benefits of minimum wage increases make two to three times more than the poverty level.

So when the Legislature proposes raising the minimum wage, it’s important to know the measure by and large won’t boost the paychecks of the low-income families it’s intended to help. What indexing the minimum wage to inflation does do, however, is raise the teen unemployment rate by decimating entry-level job opportunities.

Washington and Oregon indexed their state minimum wages to inflation in 2001 and 2003, respectively. Research by Eric Fruits of Portland State University found that, between 2003 and 2008, both states had young adult unemployment rates 5 percent higher than without an indexed wage.

This is Econ 101. Raising the price of something — in this case, the cost of an hour of work — decreases demand. Since indexing causes the price of entry-level labor to rise almost every year, the consequences for younger, less experienced workers are devastating. Teen unemployment rates are through the roof in states indexing the minimum wage to inflation. Washington’s teen unemployment is averaging 34.5 percent; Oregon’s is 33 percent; Nevada’s is 35.4 percent.

It’s not hard to understand why. Minimum wage employees tend to work in labor-intensive industries with razor-thin profit margins like grocery stores and restaurants. You can raise the minimum wage with inflation year after year, but it still takes just as long for teens to bus tables or sweep floors. These businesses have to find other ways to absorb new costs, and that often means introducing self-service — like asking customers to clean their own trays, bag their own groceries or simply wait longer to be served — to cut down on employee hours. Either way, it means more teens are missing out on valuable career skills learned in a first job.

The most insulting aspect of this plan is Georgia’s legislators thinking employees working at the minimum can’t earn a raise on their own. Research shows that is just not the case: William Even (Miami University) and David Macpherson (Trinity University) found that almost two-thirds of minimum-wage employees earn a greater than 10 percent pay increase within a year of beginning employment.

There are better ways to lift people out of poverty. As former President Bill Clinton put it: “We can increase the earned income tax credit by a couple of billion dollars a year, and far more efficiently than raising the minimum wage, lift the working poor out of poverty.”

If you don’t trust President Clinton, ask an economist. Fully 70 percent surveyed point to the Earned Income Tax Credit as the best anti-poverty policy; only 9 percent said the same about the minimum wage.

If Bubba and the vast majority of economists can’t convince you, maybe that unemployed teenager sitting on your couch all summer will.

Michael Saltsman is the research fellow at the Employment Policies Institute in Washington.