This article appeared in the Pittsburgh Post-Gazette on Sunday, September 4, 2005 in its "Puts & Calls" feature.

If Lawmakers Deserve a Raise, Why Not the Little Guy?

Keystone Research Center

This year's State of Working Pennsylvania -- the 10th annual look at economic and employment situation of the state's residents by the Keystone Research Center -- is released at a time of growing uncertainty about the national economy.

Rising energy costs worsened by the Hurricane Katrina catastrophe, indications that the housing market bubble may burst, and quickening inflation and interest rates have led some economic observers to anticipate a slowdown over the next few months.

In Pennsylvania, vulnerability to a slowdown, if it occurs, will be heightened by the fact that three years of economic recovery have brought only wage stagnation or decline for most workers.

This stagnation, coupled with rising gas prices, help explain the intensity of public reaction to the 16 to 34 percent pay increases enacted for members of the General Assembly in July. This reaction, in turn, has left the Legislature searching for ways to demonstrate its concern for the average Pennsylvanian.

One of the actions under consideration is an increase in the state's minimum wage from the current $5.15 per hour to $7.15 per hour. Based on a review of the latest Pennsylvania labor market data and of research on the impact of raising the minimum wage, this report concludes that a state minimum wage increase that benefits Pennsylvania's most poorly paid workers should be implemented for three reasons:

First, such an increase would be consistent with the Pennsylvania value, expressed by many members of the General Assembly as they voted to raise their own pay, that hard work be fairly rewarded. Minimum wage workers, many of whom provide the bulk of income for their households, have gone without a pay raise for many years.

Second, the best available economic research based on real-world effects of minimum wage increases suggests that raising Pennsylvania's minimum wage would not lead to significant job losses.

Third, an increase in the minimum wage would strengthen the Commonwealth's economy in the long run by encouraging companies to compete based on ingenuity and effective management, instead of low wages.

In sum, an increase would help create a more moral economy: an economy more consistent with Pennsylvania values and one that works well on economic terms.

This is particularly true in light at what our annual report, the State of Working Pennsylvania 2005, found.

What the data show is that Pennsylvania workers have gained little or nothing from the economic recovery that began toward the end of 2001. This is especially true of the workers at the low end of the job market that Wal-Mart now sees pinching pennies to cope with rising oil prices.

The inflation-adjusted hourly earnings of typical low-wage Pennsylvania workers, who number more than a half million, fell 10 cents per hour between 2003 and 2004 and 15 cents per hour since 2001, to $7.16 per hour. Their current wage level amounts to about $15,000 per year if these workers are employed full time, full-year.

Low-wage Pennsylvania workers earn less in inflation-adjusted terms than they did in 1979 as well as in 2001 and 2003.

Low-wage male workers also earned less in 2004 adjusted for inflation than in 2003 or in 2001 and 63 cents per hour less in 2004 than in 1979 -- $7.84 vs. $8.47 per hour.

Low-wage female workers have also lost ground; they earned $6.71 per hour in 2004 compared to $6.90 a year earlier and $6.77 in 1979.

Finally, the share of Pennsylvania workers earning poverty wages (defined as enough to lift a family of three above the poverty line for a full-time, full-year worker) climbed to 23 percent in 2004, up from about 20 percent in both 2003 and 1979.

Low-wage workers have not been alone in feeling wage pressure. Indeed, wages throughout the Pennsylvania wage distribution fell from 2003 to 2004, except for those in the very middle of the earnings curve and those at the very top.

While median-wage earners enjoyed an inflation-adjusted increase of 13 cents per hour from 2003 to 2004, this rise was less than 1 percent. Middle-wage workers earned $14.08 per hour in 2004, up only 9 cents from the 2001 level of $13.99.

For workers, families, and Pennsylvania businesses that sell to working people, one critical step to improving the economic situation would be to raise the state's minimum wage, an action the Pennsylvania legislature and governor committed to consider with the establishment of a Minimum Wage Advisory Commission this July.

Research indicates a hike to $7.15 per hour from the current $5.15 would benefit an estimated 860,000 workers and their families, helping them avoid difficult choices between heating the house, keeping food on the table, and being able to pay for heating oil.

A large body of research also shows that raising the minimum wage does not lead to job losses.

A higher minimum wage can even benefit the economy by encouraging companies to compete based on skill and productivity not low wages and also by helping maintain workers' purchasing power.

More immediately, Pennsylvania businesses as well as workers could benefit from a minimum wage hike that stabilizes the confidence of low-income consumers before rising energy costs and inflation trigger a vicious circle of declining demand and layoffs.

"The minimum wage has lost 41 percent of its inflation-adjusted value since 1968, and more than two-thirds of its value relative to the value of what the average worker produces in an hour," notes Stephen Herzenberg, an economist and executive director at the Keystone Research Center.

"Pennsylvania's low-wage workers," he concludes, "are at least as deserving of a pay raise as Pennsylvania's legislators."