Democratic Lawmakers Pitch $12-an-Hour Minimum-Wage Plan – Real Time Economics

Demonstrators gather in front of a McDonald’s restaurant to call for an increase in the minimum wage earlier this month in Chicago. The demonstration was one of many held nationwide to draw attention to the cause.
SCOTT OLSON/GETTY IMAGES

Democratic lawmakers are upping the ante on the minimum wage Thursday, pitching a plan to lift the federal pay floor by 66% to $12 an hour by 2020.

The proposal appears to be a long-shot—a plan to raise the minimum wage to $10.10 an hour failed last year. But the new legislation helps frame the wider debate around income inequality just as the 2016 presidential campaign gets under way. The issue has gained further attention in recent months thanks to rallies by fast-food workers and moves by employers including McDonalds and Walmart to raise minimum wages.

Sen. Patty Murray (D., Wash.) and Rep. Bobby Scott (D., Va.) are set to introduce their measure Thursday afternoon. The lawmakers say their proposal will lead to wage increases for nearly 38 million Americans and “help more families make ends meet.”

The proposal is in many ways more aggressive than the $10.10-plan that passed a Democratic-controlled Senate last year but failed to pass muster with Republicans in the House. Republicans now control both chambers.

The increase to $12 an hour, from the current $7.25 rate, would be much steeper than 40% increase in phased in between 2007 and 2009 or 39% bump considered last year.

Republican lawmakers have said a large increase in the minimum wage will cost the country jobs. A report from the Congressional Budget Office published last year showed an increase to $10.10 an hour would cost the economy about 500,000. A smaller increase to $9 an hour was projected to cost 100,000 jobs.

Ms. Murray and Mr. Scott’s proposal would also gradually eliminate the lower minimum wage received by workers who earn tips, something not in last year’s measure. Currently, waiters and similar workers are only required to be paid $2.13 an hour, so long as they receive tips to bring their hourly rate in line with the minimum wage.

The restaurant industry, which employs almost half of all minimum-wage workers, has raised concerns with similar measures include in state and local proposals. They argue eliminating the so-called tip credit rewards servers over cooks and others in restaurants.

Thursday’s proposal ties future wage increases to changes in the median wage paid to workers. A specific ratio has yet to be released. The federal minimum wage has not previously been indexed for automatic raises. Congress must vote for the pay increase.

Tying future increases to median wages is a departure from the practice followed in several states, where the minimum wage is tied to inflation measures such as the consumer-price index. Median wages typically outpace inflation.

Connecting the minimum wage to the median wage of all workers more directly addresses concerns about income inequality. It assures the lowest paid workers don’t fall too far behind the middle.

In 1968, when the minimum-wage was near its inflation-adjusted peak, the minimum wage was 52% of the median hourly wage, according to the Economic Policy Institute, a left-leaning group supported by the AFL-CIO and other unions. That share had fallen to 37% last year.

Economic Policy Institute economists said their initial read of the new proposal would bring minimum-wage workers back in line with the 1968 level by 2020.

The proposal “would raise the purchasing power of the minimum wage modestly relative to where it was five decades ago,” they said in a paper released Thursday. “ It would also restore the relationship between the minimum wage and the wage of workers in the middle.”

The Employment Policies Institute, a right-leaning group that receives funding from restaurants, says raising the minimum wage will eliminate entry-level jobs and could cause some businesses to close.

An increase to $12 an hour “would result in teenagers and low-skilled adults having more difficulty finding a job,” said Michael Saltsman, research director at the Employment Policies Institute. “Policy makers who think that a $12 minimum wage is a good idea should read real stories from affected small business owners.”

Corrections & Amplifications

The Economic Policy Institute was misidentified as the Employment Policy Institute in an earlier version of this article.

Related reading:

Is $15 an Hour a Realistic Goal for Fast-Food Workers?

Why Are Wages Growing Slowly Despite McDonald’s, Wal-Mart Raises?

Wages Q&A: What Do McDonald’s, Wal-Mart and Target Pay Raises Mean for the Economy?

Behind McDonald’s Pay Boost: Growing Wage Pressure for Low-Skilled Jobs

 


 


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30 April 2015 | 5:09 pm – Source: blogs.wsj.com

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