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Maximizing the Debate on Minimum Wage

March 22, 2013  • Institute Contributor

In the State of the Union address, President Obama declared, “in the wealthiest nation on Earth, no one who works full time should have to live in poverty.” Despite this seemingly common sense idea, in 2011, 3.8 million American workers earned a wage equivalent or less than the federal minimum wage of $7.25 an hour. For a full-time year-round worker, this wage falls approximately $8,000 below the poverty threshold for a family of four. 

To focus much-needed attention to this issue, the Aspen Institute’s Economic Opportunities Program brought together a successful business leader and philanthropist, a leading conservative voice, a workers’ rights advocate, and a prominent researcher in a recent event to discuss how raising the minimum wage could contribute to creating more and better-quality jobs. This discussion was the first in an Aspen Institute series titled Working in America, which will focus on ideas and policies to improve opportunities for American workers.

Indeed, the wage floor has a far-reaching impact on the economy. Across the panel, it was agreed that raising the wage floor would boost the economy in ways similar to a fiscal stimulus. Rather than spurring redistribution by way of taxpayer dollars, this stimulative effect would be paid for by the private businesses benefitting from the labor of low-wage workers. Ultimately, they argued, private businesses would profit as well because lower- and middle-income households would have more available income to purchase otherwise unaffordable goods and services. 

Notably, conservative publisher Ron Unz insisted, “A substantial rise in the minimum wage would cause an influx of extra dollars into the pockets of the lowest wage workers in our society. Most of them right now spend every dollar that they earn.” Half-jokingly, he went on to say, “A large rise in the minimum wage is almost the same as a fiscal stimulus, except a fiscal stimulus has a much better chance of getting through Congress.”

Perhaps the most common rationale behind opposition to raising the minimum wage is that the higher cost of employing low wage workers would hinder job growth in an already slack labor market and exacerbate employment challenges faced by an already struggling population. Entrepreneur and venture capitalist Nick Hanauer argued against this logic, noting that an increase of the minimum wage would mean increased returns for everyone—for businesses and low-wage workers alike.  He asserted, “We will be more prosperous, but so will the shareholders of Wal-Mart. When every citizen in America can spend more money out at Wal-Mart, Wal-Mart will do more business and when they do more business, they will be forced to hire more people.” 

In other words, the widespread boost in consumers’ earnings would logically induce the creation of jobs. Similar to its initial purpose when first introduced during the Great Depression, the panelists uniformly stressed the viability of the Federal wage regulation to keep workers out of poverty, and moreover, stimulate consumer spending to recover the economy and jobs.  

When looking at the recovery of the labor market, it is clear that low-wage jobs grew at a disproportionately high rate when compared with the recession’s substantial losses of mid- or high-wage positions. Further, most of the new jobs projected to come in the next decade are in low-wage occupations. Given the context of this labor market and fiscal crisis, meaningful consideration of the wage floor’s impact on workers, economic stability, consumer purchasing power, government spending on welfare supports, income inequality and other issues is vital.  

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For the video of the entire discussion, watch here.