John Buell

Battle Over Minimum Wages

The conservative pundits are out in full force, scolding those of us who didn't learn our economics 101. The brashest is Washington Post columnist James Glassman, whose favorite obsession is the minimum wage. In a recent column, he intoned: "All else being equal, if you raise the price of something (for instance, labor), then the demand for it (for instance, by employers) will decline. That's not just a theory; it's a law."

Glassman's assertion of the law-like nature of labor markets may seem like hard-nosed realism. Nonetheless, during those periods in our history when we adhered to these laws and let corporations and markets exercise sole control over workers' wages, the 1880s and the 1920s, our market economy collapsed. Small business bankruptcies, economic growth, and even profits were at their worst levels ever.

Recent proposals to increase the minimum wage by a dollar have evoked a nearly hysterical business response. Nonetheless, there are six good reasons why Congress should revoke Glassman's laws and vote to increase the minimum wage:

1) History justifies a wage increase. Even after the recent boost, today's minimum wage jobs pay 30 percent less in real, inflation-adjusted, terms than 30 years ago. Steady increases in the minimum wage in the '50s and '60s were accompanied by dramatic job growth and reductions in inequality. Profits and economic growth continued to escalate even after the recent boost in the minimum wage.
2) Corporations can afford the increase. Today's economy is 50 percent more productive than a generation earlier. Here in Maine, State Senator Peter Mills has frequently observed that in Skowhegan, where he represents many small businesses, it is not primarily the Maine-owned companies on Main Street that actually pay minimum wage, but more often franchise operations of highly profitable multi-national companies with headquarters and highly paid executives out-of-state. As long as demand remains strong, there is little doubt that employers can keep adding workers even if wages rise modestly.

3) Many of the jobs at or just above the minimum wage are service sector jobs. They cannot easily be relocated to other nations in search of cheap labor. Several states in my region, including Vermont and Massachusetts, have recognized that the current Federal minimum is too low. They have already set higher state levels, and it is hard to detect any adverse consequences.

4) Workers aren't just another productive input. How they are treated has a major impact on their productivity. In an article on a minimum wage ordinance in Los Angeles in The Nation magazine, University of California Riverside economist Robert Pollin reports that firms paying $7.25 an hour were competing successfully with firms paying far less. He suggests: "The key to their competitive success was a high morale/high productivity work environment, which included almost no absenteeism or turnover."

5) Workers, unlike other "inputs," are also consumers. Our current economic growth is heavily dependent on consumer debt. That cannot continue forever. Only if we raise the bottom layers will we be able to put economic advance on a sounder foundation.

6) Society neither can nor should allow working Americans to persist in starvation and hunger. Public policy has driven many off welfare. This agenda has been premised on the popular assumption that if one works hard, one can escape poverty.

Maine is one of the few states where this assumption has received careful scrutiny. Recent studies of poor women by Stephanie Seguino and Sandy Butler for The Maine Center for Economic Policy indicate that many of those driven off welfare receive below-poverty-level wages. They will continue to need assistance, either in the form of private charity, restored welfare, or increases in the earned income tax credit.

The last is the best public policy tool because it creates an incentive to work and is broad-based without being unduly intrusive in citizens' lives. Nonetheless, even this tax credit costs taxpayers and is an implicit subsidy to businesses that choose a low pay, high turnover work strategy. The strategy, subsidized by us all, works for business in the short run but imposes severe costs on the rest of us.

If our social commitment to replacing welfare with work is ever to become more than an attack on the poor, we will have to amend Glassman's dangerous law. Modest boosts in the minimum wage, especially during a booming economy, can leverage greater worker productivity and continuing consumer demand. And business screams to the contrary, it is hardly micromanagement. It encourages high road competition among business and brings out the best in democratic entrepreneurialism. Indeed, it beats the inadequate and demeaning paternalism to which we must inevitably resort when the worst ravages of poverty grip our communities.

John Buell lives in Southwest Harbor, Maine and writes on labor and environmental issues. He is co-athor, with Tom DeLuca, of Sustainable Demcracy: Individuality and the Politics of the Environment (Sage). He may be reached via email at

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