The Multinational Monitor

JUNE 1989 - VOLUME 10 - NUMBER 6


A Living Wage

Legislation to increase the minimum wage passed in the House of Representatives and in the Senate. But President Bush, waving the banner of international competition, opposed the increase. He claims that forcing U.S: based businesses to pay their workers more will raise the cost of American products and price them out of foreign markets. But gaining a competitive edge at the expense of the lowest paid workers in the country, rather than by increasing industrial productivity, is economic foolishness.

People who work 40 hours a week in minimum wage jobs currently earn less than $7,000 a year, an income well below the poverty level for a family of three. There are two million people in this country who work full time, year-round and still live in poverty. According to the AFL-CIO's Department of Economic Research, a wage earner must make $4.66 per hour to support a family of three at the poverty level today. Bush is calling for a ceiling of $4.35 an hour and a six month "training period," during which employers may pay below the minimum. The president's proposed increase will yield a worker only $8,700 a year and his training period would encourage employers to maintain a high employee turn-over rate. Congress has compromised, agreeing to a 60 day (rather than a six month) training period, but Bush is unbending. Even as proposed by Congress, the increase will not restore the relative and real value of wages to 1981 levels. And the 36 percent increase, bringing the yearly minimum salary up to $9,100, does not come close to the 50 percent salary increase (from $89,500 to $130,000 a year) that President Bush advocates for Congress.

Minimum wage earners should be paid a livable wage and wages should be indexed to the cost of living. This wage increase is long overdue. The minimum wage has remained constant in this country since 1981. Taking into account the inflation of the dollar over those eight years, the minimum wage has actually fallen by 29 percent; in 1981 dollars, minimum wage workers today actually earn about $2.46 per hour, the lowest real value for the mini-mum since 1955. These numbers translate into real life hardship for those who earn at that rate. Twenty-six percent of the people who are trying to survive on these wages are single heads of households. Paying for food and housing on $6,700 a year leaves little or no money for childcare, medical costs and other necessities. Many are unable even to afford housing. If the minimum standard was set at an acceptable (above poverty) level and was linked to the cost of living, workers would not face such hardships.

Those who oppose the increase offer many arguments to explain why it would be bad for the U.S. economy and for U.S. workers: they claim that raising wages will lead to inflation which will hurt minimum wage workers first; they say that 1.5 million jobs will be lost; increased costs will be passed on to consumers, possibly costing as much as $10 billion; and, when all else fails, they plead for the great American cause of the eighties � the need for internationally competitive labor standards. Businesses claim that they face an insurmountable disadvantage operating in the United States because they are forced to compete with Third World operations where wages are much lower.

Many respected economists, however, have refuted these arguments. They counter that the proposed wage hike would increase inflation by no more than 0.2 percent over three years and would contribute to an unemployment increase of less than 0.1 percent over the same period. Many of the low-wage jobs in this country, they point out, are in the service sector and therefore not exportable. Since the first minimum wage was instituted in 1938, it has been raised six times and there is no evidence that any of the raises significantly contributed to inflation or unemployment. As for the suggestion that a wage increase will produce a loss in consumers' buying power, Jeff Faux, president of the Economic Policy Institute asserts that the reverse is more likely. According to Faux even if you could "create full employment at $2 an hour, you would soon have a problem with customers: you wouldn't have any." He says the increased buying power, resulting from raised wages, will actually stimulate the economy.

Economic growth has been achieved historically in this country with high wages. Wage-led growth steers companies to shift from low to high-productivity sectors as the high wages encourage capital intensive rather than labor intensive production. As productivity increases along with wages, the problem of international competitiveness will be mitigated.

It makes no sense to demand that the U.S. workforce compete on salary terms with the super-exploited laborers of the Third World. Government and business should be raising the standards of the lowest, not lowering the already weakened standard in this country. Sub-poverty wages and the elimination of protective labor laws are not acceptable anywhere in the world. President Bush should support an increase in the minimum wage and labor leaders should develop strategies to eliminate worker exploitation in the Third World.

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