Commentary | Wages, Incomes, and Wealth

Pay Workers a Living Wage

Opinion pieces and speeches by EPI staff and associates.


Pay Workers a Living Wage

by Jared Bernstein

An evenly divided Congress appears set to raise the minimum wage, and the President will likely sign it. A recent poll conducted by The New York Times and CBS News found that nine out of 10 respondents support such an increase. Meanwhile, living wage ordinances are being adopted in cities throughout the country.

At a time when free-market ideology dominates policy making at every level of government, one might well wonder why wage mandates are so popular.

Wage mandates, however, have long played an important — and popular — role in the U.S. labor market. The original debate over a national minimum wage began in the heart of the Depression, when our nation’s most severe market failure drove wage offers down to socially intolerable levels. It was enacted, at 25 cents an hour, in 1938.

Economic conditions have never been this dire since, but the forces of supply and demand, in tandem with the weak bargaining power of our least advantaged workers, still manage to push wage offers below poverty levels.

Opponents of wage mandates raise numerous objections. Their first argument used to be that these policies would upset the delicate equilibrium in the low-wage labor market, leading to job losses and other economic distortions. But purely competitive markets exist only in theory, which is why these dour predictions fail to materialize each time there’s a minimum wage hike.

Critics have lately focused on targeting, arguing that since these wage mandates aren’t linked to family income, it’s possible that some of the benefits are going to low-wage workers in high-income families. This is an empirical question, and evidence shows that most of the benefits of the minimum
wage — about 60 percent — go to those who need the extra pay to make ends meet.

But these policies are not solely about targeting. Like any other regulation, they are about standards that are acceptable to the broad public. Rock-bottom wages, regardless of family income, are no more acceptable than unsafe food or unclean air. And the popularity of minimum wage increases isn’t based on self-interest: 90 percent of the public supports a higher minimum wage, but only 10 percent will reap its benefits.

Finally, some argue that instead of wage mandates, we should stress better education and tax credits. Both are worthy, but neither is a panacea.

Low-wage workers are actually more highly educated than ever before. Since the late 1970s, the share of low-wage workers that are high-school dropouts has fallen by eight percentage points, with a commensurate increase in the shares of those with higher education levels. Yet this educational upgrading has coincided with wage downgrading.

Low-wage workers need better skills, of course, but that’s not enough. Better skills are a long-term solution to an immediate problem.

One of the most effective anti-poverty tools is the Earned Income Tax Credit, a wage subsidy that can add $4,000 to the annual income of low-income families. But this is a pure redistribution of resources from taxpayers to low-wage workers. Low-income working families cannot afford to depend solely on those who control the public purse strings.

Wage mandates are complementary to education and tax credits, not exclusive of them, a point recognized by many lawmakers at the national, state, and local levels. Together, these policies truly can make work pay for our least fortunate workers.

Jared Bernstein is a labor economist at the Economic Policy Institute.


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