Let's rethink the minimum wage. It's not the government playing Robin Hood, taking from bosses and giving to workers. Raising the minimum boosts spending across the economy, helping businesses that sell to Americans. It's too bad the Chamber of Commerce and conservative business groups fight increases; they're hurting workers and themselves.
The environmentalist Garrett Hardin famously coined "tragedy of the commons" in a 1968 paper in Scientific American. Tragedy results when individuals press their interests on common property, to everyone's detriment. If herders share a common pasture, and each of them breeds as many animals as possible, overgrazing spoils the pasture.
Modern economies are common ground. Keeping wages down helps each business's bottom line, but minimizes what workers can spend, which is bad for every other business. If you own a pizza place, and I own a grocery, you lose if my workers can't afford pizza, and I lose if your workers buy beans instead of beef. What we need is a rule: every business must pay a decent wage. That's what minimum-wage laws are supposed to do.
In today's America, low-income workers are growing in number, and the economy needs their spending more than ever. They take their money to Main Street, where it's needed. Let's restore a decent minimum wage.
Raising the Minimum Gives Millions of Workers More Money to Spend
The proposed Harkin-Miller Fair Minimum Wage Act would raise the federal minimum in three increments from $7.25 to $9.80 an hour. In 2011, 14.8 million workers--twenty percent of hourly employees--earned $9.85 or less.
Not only would nearly all those workers benefit, so would millions more. The Bureau of Labor Statistics tracks wages in retail, food services, hospitality and other industries where most workers start at the minimum wage or a few cents higher and get raises with experience. The Bureau's historical data series show that an increase in the minimum nudges the rest, and median wages in those industries go up by about the same amount.
Minimum-wage increases circulate through the economy. My analysis of Commerce Department data found that annual growth of real gross domestic product averaged 3.17 percent over the period 1950 -- 2011. The gain in years following increases in the federal minimum was 3.25 percent, despite the fact that increases were small and over time failed to keep up with inflation. More sophisticated economic studies also conclude that raising the minimum has a positive effect.
America Needs Low-Income Spenders More than Ever
Until 2008, America's spenders partied. From 1946 until the mid-1970s, real wages and salaries boomed, and spending followed. Although income gains slowed after 1980, spending kept right on growing, as more women entered the workforce and households financed purchases with mounting private debt.
Low-income buyers counted, but were easily overlooked, because they left the party early. From 1970 to the present, the federal minimum wage lost 30 percent of its buying power. Not only were increases small, under GOP administrations they were rare.
The middle class partied on until 2008. Since then, median household annual income has dropped $4000. Home equity has crashed, households don't try to borrow, and banks don't lend. Spending fell with the fortunes of middle-income earners, and though it has risen from the depths of the recession, it remains well below its mid-noughties peak, after adjusting for population growth and inflation.
To restore the fortunes of the middle class, America must improve the incomes of swelling masses who now earn very little. Most of the jobs added since the start of the Great Recession pay low wages, a situation that is not about to improve dramatically. The Bureau of Labor Statistics forecasts that through 2020 the four largest categories of new jobs will be registered nurses, retail salespersons, home health aides and personal care aides. Except for the nurses, most of those jobs pay wages near the bottom.
So the relative contribution of low-income workers to spending will be greater than in past decades. If they get better wages, everyone who sells to Americans wins.
Business Should Welcome Government Action
Whatever the causes of the great recession--private debt, real estate bubble, Wall Street gambling--slack spending was not one of them. Nevertheless, the American economic commons remains in a rut, and better wages at the bottom would aid recovery. Increases in the minimum wage see to it that no one business has to bear the burden alone.