This editorial appeared in the Allentown Morning Call on September 4, 2005

To Raise or Not to Raise?

State legislators can give low-wage workers a pay increase without breaking a budget or harming jobs

By
Stephen Herzenberg

Pennsylvania legislators can give hundreds of thousands of low-wage Pennsylvania workers a pay raise. They can do so without harming these workers' job opportunities or busting the state budget — by raising the state minimum wage. And so they should.

As documented in Keystone Research Center's State of Working Pennsylvania (online at http://www.stateofworkingpa.org ), low-wage Pennsylvania workers have lost ground in the last three years. They earn even less than their counterparts in 1979. And now gas prices are rising.

More than half a million Pennsylvania workers earn $7.15 per hour or less — $15,000 each year for a full-time worker — and would benefit directly from an increase in the state minimum wage from $5.15 per hour to $7.15.

Critics often charge that the common-sense idea that a higher minimum wage would benefit low-income workers and families is wrong. But the evidence shows that in the case of the minimum wage, common sense is actually right.

One charge is that a higher minimum wage doesn't help the right people. Too many beneficiaries are teenagers in affluent families. The facts show otherwise.

In Pennsylvania, for example, 71 percent of those who would benefit directly from a minimum wage hike to $7.15 are 20 and over. The poorest fifth of Pennsylvania households would receive a third of the benefits from a higher minimum wage and the poorest three fifths nearly two-thirds.

Among all families who benefit, minimum wage workers earn 44 percent of their family's income — a share that makes these workers critical to their families' well-being.

A second claim is that a higher minimum wage eliminates jobs, hurting those it is intended to help. But new research shows that a higher minimum wage does not cause significant job losses.

The fact that states have increasingly raised their minimum wage above the federal level has created a number of ''natural experiments'' that have allowed researchers to compare job trends in a state after it raises its minimum wage with trends in other states and the nation.

Because of these natural experiments, the debate about the minimum wage and jobs is no longer a case of ''he said, she said,'' or one in which policymakers need to be satisfied by anecdotes from individual low-wage employers or business lobbyists. We can look at what actually happened.

In case after case, no significant loss of jobs took place. After New Jersey raised its minimum wage in the early 1990s, to take one famous example, no difference was observed in employment growth in fast-food restaurants as compared with neighboring Pennsylvania.

A higher minimum wage does not lead to job loss for several reasons. One reason is that many low-wage employers have large numbers of unfilled positions. A higher minimum wage reduces this number because workers leave their job less often and because openings can be filled more quickly. A higher minimum wage also can create jobs because it increases consumer demand among low-wage workers.

Another reason a higher minimum wage does not lead to job loss is that it makes only a small difference to costs. Overall, for example, the proposed Pennsylvania minimum wage increase to $7.15 would raise employers' total wage bill by well under 1 percent.

The small impact of a higher minimum wage on total wages addresses a third charge made by some critics — that it would lead to price hikes. New York University researchers found that if Wal-Mart gave all its employees a dollar an hour raise, its prices would go up by half of one percent. Even in a business that depends heavily on low-wage workers, other business costs and consumer incomes affect prices more than a modest increase in the minimum wage.

Of course, some individual employers may lose with a higher minimum wage just as others will gain. Businesses are destroyed every day in response to changes in oil prices, new technologies, and changing consumer tastes. This process of creative destruction lies at the heart of our market economy: Firms adapt to changing market conditions or they die.

A minimum wage is a threat to employers who fail to use their workers as productively as their competitors. More productive employers will absorb their demand. That is a good thing.

The maintenance of a high standard of living in Pennsylvania depends on our capacity to create and nurture innovative and agile entrepreneurs that combine high profits with good jobs. A higher minimum wage is an important tool for rewarding productive employers and preventing them from being undercut by competitors whose strategies are incompatible with worker, family, and community well-being.

In sum, a higher minimum wage is more than just common sense and the right thing to do: It is also good economic policy. It is one step toward a moral economy in Pennsylvania — an economy consistent with Pennsylvania values, such as a fair reward for hard work, and that will work well on economic terms.