Four recommendations for a sounder minimum wage: state minimum wages permanently set above the federal minimum in those regions where the cost of living is high, a clearer definition of the minimum wage itself, the formation of a federal minimum wage commission to oversee changes to the federal minimum wage, and a federal sub-minimum wage for teenagers. 

 

            Soon the federal minimum wage will go up -- and then our real challenge will begin.  For America needs to figure out a better federal minimum wage system.  Americans cannot let a social policy of this importance remain so flawed and at the mercy of the politics of the moment.  Here are four inter-connected recommendations.

 

1. The Roles of the Federal and State Minimum Wages

            The tide of states that are raising their minimum wages is impressive.  But it is not without its risks.  Supporters shouldn’t be lulled into thinking that 25 or 30 or 40 states each with its own minimum wage can take the place of the federal minimum wage.  This is not a struggle that can be won solely at the state level any more than civil rights issues could be. What’s more, a minimum wage that is based on state decisions is the very thing that President Bush and many conservatives whole-heartedly approve of.  What they want is a federal minimum wage that states can decide to opt out of—a very bad idea.

            What America needs is both a federal minimum wage to set a wage floor for all workers and state minimums set above the federal level for workers in high-cost regions.  It has taken a century of painful progress to get as far as we have towards this balance and we need to clarify our direction. 

            We need the federal minimum wage especially to protect workers in the many low-wage states -- Alabama, Kentucky, Louisiana, North Dakota, Montana, South Carolina, Utah and others—where business and political forces seem unlikely to set such a wage floor on their own.  And we need the state (and even city) minimum wages because, even after the federal minimum has gone up, there will be plenty of places where it is not enough to get by on. 

            So, what should happen?  Some states in the past set the state rate as a certain fixed amount above the federal level (for those times, unlike now, when the federal rate was considered reasonable).  In Massachusetts, the figure is 10 cents higher than the federal wage; for the District of Columbia, $1; for Connecticut, .5%.  Such amounts need to be larger, but they point in the right direction.  After the federal minimum wage finally gets its raise, states should take a good look at the way the minimum wage is calculated, consider whether the overall cost of living in their area is significantly higher, and, if it is, adopt a formula for keeping theirs at the appropriate level.  In that way, the federal minimum remains the national wage floor while states take the responsibility to protect workers where costs are higher.

            But the advantages of such a system presuppose that the level of any minimum wage, state or federal, rests on clearer concepts and calculations than it does now.

           

2. Setting the Level of the Minimum Wage

            How are we to gauge whether a minimum wage is too high or too low or about right?  Several good methods for calculating a desirable minimum wage are possible. 

            One approach is to base the minimum wage on the scale of wages overall.  This position is figured in terms of the average hourly wage nationally.  Our lowly federal minimum wage currently falls at 32.2% of average wages.  By comparison, the national minimum wage is the United Kingdom equals 43.2% of the average wage there, and in Australia the figure is 58.8%.  These ranges are judged adequate not only abroad but in the U.S. as well.  The states that have raised their state minimums have done so into the 40% to 50% range, and the living wages set by municipal ordinances are in that range or higher.  Our federal minimum reached 40% just after it was last raised in 1997.  The last time it was over 50% was 1968 (53%).  To reach such levels today, the federal minimum would be above $8.00 per hour. 

            One risk of keeping the minimum wage as a high portion of national wages is inflation.  That is, if all the minimum wages rose to stay at 50% of the national average, that would lift the average wage itself, the next minimum wage increase would be based on this higher figure, the average wage would be pushed up again, and so on.  But keeping the federal minimum wage within a range—say, between 40% and 45%, depending on economic factors—would be feasible.  Solution number one.

            Such calculation begs a basic question, though.  What is the minimum wage?  What is it intended to do or be?

            Many conservatives define the minimum wage as a “starting wage” and think that $5.15 is fair enough since most starting employees will soon get a raise.  Workers whose wage is stuck at or near $5.15 an hour don’t agree.

            The definition in the law that created the federal minimum wage in 1938 is that it is the amount required by the “minimum standard of living necessary for health, efficiency, and general well-being.”  And then there is the language found in the familiar calls for a minimum wage that provides “a decent standard of living for families” and the like.  But how big is a “family,” and how much is required for their "decent" life and their "well-being"? 

            The most common protest about the current federal minimum wage does include the crucial components of family size and income level: It is insufficient to keep one working adult and two children above the poverty line of $15,735 (for 2005). An advantage of this benchmark is that it captures the reality of the many poor and near-poor families that consist of a single mother with two children.  But as we saw earlier, one of its limitations is that the federal poverty measure in general is woefully low for almost all parts of the country.  So solution number two is to use a multiple of the poverty threshold --let’s say, 150% of the inflation-adjusted poverty threshold for a family of three—as a basis for the federal minimum wage, together with higher state minimums where the cost of living was higher. 

            A third approach is to do away with the nationwide minimum wage and adopt instead a flexible, universal, living wage formula in its place.  This minimum/living wage would vary around the country to reflect local housing costs and should be high enough to provide a family of three or four with adequate housing, health care, child care, food, clothing, and basic transportation.  Such an approach would mean wages ranging from about $9 to $12 per hour, depending on the local cost of living. For many living wage supporters, it doesn’t make sense to hang on to the antiquated idea of a minimum wage when families need a wage they can actually live on.  

            But to throw away the minimum wage in place of a nationwide living wage system is to throw away the difference between the purposes that the two wages serve.  The distinction between the living wage as a local family wage and a minimum wage as a national rock-bottom is worth keeping. Governments took on the minimum wage for the purpose of protecting vulnerable and non-organized workers against exploitation.  The minimum wage is not a “good” wage and it’s not a family wage; employers should not feel proud of paying it and employees should not try to raise a family on it by themselves. Its function is protection against wage abuse.

            So a fourth option is to define the minimum wage as the wage that one worker himself or herself needs to live adequately—a living wage for one adult.  For what is most tragic about the current federal minimum is not that it fails to keep a family of three above the federal poverty level but that it fails to keep even a single adult worker above an actual poverty level.  In rural areas of states with low costs, an hourly wage from $6 to $9 will provide a single adult with efficiency apartment, food, clothing, a cell phone, basic transportation, and basic health care. Higher state minimums and some city minimums would be needed where costs are higher, as described earlier.  Basing the minimum wage on the amount needed to support just one worker is a moderate measure; in fact, it will seem harsh to living wage supporters.  But it has self-evidence and lack of ambiguity to recommend it.

 

3. Keeping Up with Inflation with a Federal Minimum Wage Commission

            No matter how it is set, the federal minimum wage must go up--regularly.  The working poor get poorer because the value of the minimum wage sinks beneath inflation, and the rich can lobby effectively against an increase in part because “catch-up” increases seem so large—41% for the current proposals.  The solution: small, regular increases.  Such increases are standard procedure in some major federal programs, and they should be in this federal mandate as well.  Social Security goes up, Medicare goes up, even the federal poverty line goes up each year—all are indexed to increases in the cost of living in an inconspicuous, non-controversial process that sustains millions of Americans.   

            There are two basic ways to increase a minimum wage regularly.  One is to index it directly to another economic indicator such as inflation or average wages.  Four states currently index their minimums to inflation.  Florida, Vermont, Oregon, and Washington have systems for raising the state minimums each year according to the previous year’s increase in the cost of living in the U. S. as a whole. As a result, the value of their minimum wages remains or will remain steady. But among nations around the world, rigid indexing is a rarity.  Of the more than 60 countries with established methods for adjusting their minimum wages (Francois Eyraud and Catherine Saget, The fundamentals of minimum wage fixing, 2005), only Israel pegs its minimum wage inflexibly to another number (the average wage) in the economy. 

            The other and much more common method is for representatives from business, labor, and government to recommend or to carry out the change.  Such a process has been established in at least one state, New Jersey, which in 2005, while increasing its state minimum, also set up a five-person commission with representation from state government, the AFL-CIO, and the business community.  The law includes the provision that after the commission’s recommendation (the first is expected in 2008), the legislature must reply within a fixed time frame.  Ironically, the first federal minimum wage legislation, back in 1938, almost included a similar commission but it was dropped from the final bill. Today, minimum wage commissions of one type or another exist in many nations. An outstanding model is Great Britain’s. Since 1999, the Low Pay Commission has sent an annual report to the government, which has accepted its recommended changes in wage levels.

            What is the purpose of a commission system?  Or, to put it another way, if it is so vital to adjust the minimum wage so that its value keeps up with inflation, then what would justify a commission’s recommending anything less than a cost-of-living increase?  David Card and Alan Krueger, the researchers who famously found no employment ill-effects from minimum wage increases, urged renewed consideration of indexation, but they raised cautions as well (394-395).  Depending on the distribution of wages across the economy, the minimum wage, which is itself a contributing factor in how many people earn which wages, should not be raised strictly by the cost-of-living increase in those years when doing so might contribute to inflation or unemployment the following year. Conversely, one should add, when it appears that low-wage workers are not benefiting from the minimum wage as intended and the economy has suffered no significant adverse effects from recent increases, the federal minimum wage could be increased in a given year above the inflation level. (There are no better models of this kind of analysis than the easily-available reports from Britain’s Low Pay Commission.) 

             

4.  A Minimum Wage for Teenagers

            For all the fuss that opponents make about the damage that a minimum wage increase would do to teenage employment, it is surprising that neither opponents nor supporters say much about a common solution: lower minimum wages for workers in their teens. More than 30 countries around the world have youth minimum wages (Eyraud).  Great Britain, in fact, has three minimum wage rates: