What is to be done with the federal minimum wage – stuck at $7.25 an hour since 2009, with no raise in sight?
One approach is just that. Stay with the status quo, on the theory that a higher minimum wage is a job-killer. As House Speaker John Boehner, R-Ohio, has put it, “When you raise the price of employment, guess what happens? You get less of it.”
Backers of a higher minimum acknowledge the potential for job losses but argue that it is minor and more than offset by the benefits of a raise to low-income workers and society at large. In the absence of congressional action, they are pushing for increases at the state and local level (19 states and the District of Columbia already have minimum wages above the federal level). On Wednesday, California Gov. Jerry Brown signed a bill that will raise the minimum to $10 by 2016.
The U.S. economy needs a national policy, not a patchwork of state and local laws. It’s time for a grand bargain on the federal minimum wage, one that recognizes that both sides in this seemingly endless debate have a point. A decent society can afford neither to price entry-level workers out of jobs nor to leave them completely without leverage in the labor market.
The first step in reforming the federal minimum wage is to index it to inflation, thus eliminating the need for an act of Congress – and a rehearsal of the shopworn arguments – before every increase. Since there is a national consensus in favor of some minimum wage, if not its precise level, let’s take the politics out of maintaining its purchasing power.
Both business and workers would benefit from stability and certainty; a federal minimum that kept up with inflation also might discourage state and local governments from acting separately.
The second step is an increase, to make up for some of the purchasing power that has been lost in recent years. House Democrats want $10.10, which is a return to 1968’s all-time high in real terms; President Obama has suggested $9, the 1981 level. Given GOP opposition, neither is politically feasible.
We propose $8 an hour. This is an easier sell politically – especially since it would be the final boost before inflation-indexing takes over.
The final element of our grand bargain is to augment the earned-income tax credit, a cash supplement to wages that works like a negative income tax. With a strong history of bipartisan support, the credit pays more than $5,300 a year to a family with two children. It rewards work effort, lifts millions out of poverty and has offset much of the minimum wage’s recent stagnation.
In short, our plan shores up low-income wage-earners, removes a perennial irritant from the political system and does no undue harm to work incentives.