Commentary: Minimum Wage: The States Get It

Since Congress won't raise hourly pay, local lawmakers are taking the lead

Florida Governor Jeb Bush helped to deliver 52% of his state's votes for his brother on Nov. 2, but that didn't stop fully 72% of voters there from backing a GOP-unfriendly ballot initiative: raising the minimum wage. The popular measure set a state wage floor of $6.15 an hour, a buck higher than the federal level, which hasn't been lifted since 1997. It also pegs the state's new minimum to inflation, so that the lowest-paid workers will get automatic increases each year to keep their purchasing power in line with consumer price hikes.

The initiative, to which Governor Bush offered only tepid opposition, makes Florida the 13th state to lose patience with the federal government and set its own higher minimum. It's also the third, following Washington and Oregon, to index its minimum wage to inflation. Both of these ideas are long overdue and should be emulated by Congress and other states.

True, if wage floors are set too high, employers will create fewer jobs, and the lowest-skilled Americans will lose more than they gain. This is the argument some business groups made in Florida and continue to make about the federal minimum, says Stephen R. Birtman, Florida state director of the National Federation of Independent Business (NFIB).

But new research over the past decade shows that modest hikes to keep the low-paid abreast of inflation will cost few if any jobs. The point has been widely embraced since 1995 studies by University of California at Berkeley economist David Card and Princeton University economist Alan B. Krueger found no employment losses among New Jersey fast food restaurants hit with minimum-wage hikes. Given wide variations in costs around the country, the federal minimum should serve as a floor, which would allow high-cost states such as California or Alaska to set their own minimums higher if they wish. "Indexing doesn't improve conditions for low-wage workers, it just keeps them from deteriorating further as prices rise," says Robert Pollin, an economics professor at the University of Massachusetts at Amherst who led a study of the Florida initiative for its advocates.

Certainly, there are few credible reasons left to oppose an increase of the federal $5.15 an hour. That sum gives a full-time worker barely more than $10,000 a year, despite a family poverty level that has climbed to $18,600. Indeed, the federal minimum was 40% higher in 1968, or $8.50 in today's dollars. So lifting it by a dollar or two wouldn't even come close to restoring low-wage workers' purchasing power back to where it was more than 25 years ago.

Employers of low-wage workers -- mostly restaurant and hotel chains and small companies represented by groups such as the NFIB -- have enough clout in Washington to a block minimum wage hike. But the idea has widespread support. As many as 123 cities have passed "living wage" laws, which set higher minimums for workers employed by city contractors. "Even most people in red states like Florida know that $10,000 a year is a joke to live on," says Jen Kern, director of the Living Wage Resource Center at ACORN, an antipoverty group that spearheaded the Florida initiative and others.

Some critics argue that the Earned Income Tax Credit is a better way to lift up the poor. The reason: The EITC, which gives tax dollars to the lowest-income workers, targets the poor more directly than the minimum, which also covers people such as affluent teenagers.

There's truth in this view, but the EITC would work even better with a federal minimum pegged to inflation. Welfare reform and the EITC have lured more single mothers into the labor force since the mid-1990s. But in doing so, they expanded the supply of low-skilled workers, holding down low-end wages, points out David Neumark, a senior fellow at the Public Policy Institute of California. An indexed minimum would offset that downward pressure, creating complementary policies that bring up those on the bottom to rise along with the rest of us.

By Aaron Bernstein

    Before it's here, it's on the Bloomberg Terminal.