Help to Stabilize the Wage Floor

On January 4, 2007, our newly elected Democratic Congress embarked on a journey of change. Change from six years of Democrats being impugned by a rubber-stamping Republican controlled Congress. They have introduced a 100-hour agenda campaign, which will address the eight most critical domestic concerns facing our country today. Increasing the minimum wage is a central theme of this agenda.

It is imperative that the minimum wage is increased, and the 110th Congress has pledged to raise the minimum to $7.25 per hour. This increase is a definite step in the right direction, but still falls eighty-one cents short of equaling a minimum inflation-adjusted income.

Inflation happens, will always happen, and when kept to moderate levels is a sign of a healthy economy. This is kind of the same idea as the economy being healthy with the unemployment rate at 4 – 5%. Ask someone that is unemployed and they’ll tell you the economy is not very good. However, ask an economist and you’ll get a different scenario.

The common transfer of goods for sale, that is the process of buying and selling, will naturally lead to 2 – 3% inflation. No economy anywhere will experience 0% inflation. Why then do we justify employees at the lowest level of income, at the wage floor as referred by economists, having their buying power eroded by inflation?

In 1968, the minimum wage was just $1.60 per hour. The federal government has increased the minimum wage standard just four times in the past 35 years, but inflation has eroded employee’s living standards annually. In 1974 – 1976, the minimum wage was increased to $2.30; in 1980, it was increased to $3.10; in 1991, it was increased to $4.25 (you might recall the midnight congressional heist with this increase); and in 1997, it was increased to $5.15. In 1999, there was discourse of increasing the minimum over 2 – 3 years to $6.25, and many states have taken the initiative to do this with some going beyond.

Raising the minimum wage is not inflationary. Raising the minimum wage is just an income adjustment to reduce the erosive force of inflation upon income. Raising the minimum wage is good for company’s profits. Raising the minimum wage increases tax revenue. Raising the minimum wage is good.

The only bad think about the 110th Congress’ initiative to increase the minimum wage is the fact that they are not going far enough. If the minimum wage had been adjusted annually for inflation since 1971, then it would be $8.06 per hour today. Therefore, the proposed $7.25 minimum will still leave the lowest wage earners with diminished buying power.

What really needs to be accomplished, along with raising the minimum to $7.50 - $8.00 per hour, is legislation for a mandatory annual cost of living adjustment per the Consumer Price Index (CPI) inflation forecast. Then our lowest paid workers, most of whom are employed in the service sector, will not continue to be sucked into an inflationary whirl.