Here are five suggestions for making America’s minimum wages a more coherent, effective, and fair system of protection for low-wage workers.

1. Pursue the discussion of the level of need that a minimum wage should meet.

            A solid definition of the minimum wage—one that answers the question, “How basic a level of need should a minimum wage provide for, and for how many people?”—has been historically elusive.  The reasons include the difficulty of generalizing about different living costs for different people in different regions, as well as conflicting political points of view.  Nonetheless, seeking descriptions of the minimum wage that have some compelling reasonableness to them and critiquing those that don’t remains a basic foundation for rational minimum wage legislation.

            The law that created the federal minimum wage in 1938 defined it as the amount required by the “minimum standard of living necessary for health, efficiency, and general well-being.”  The phrasing resembles the calls heard today 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"? 

            One indirect answer can be found in a familiar protest about the $5.15 federal minimum wage-- that it was insufficient to keep one working adult and two children above the federal poverty line of $15,735 (for 2005).  An advantage of the family-size classification in this statistic was that it corresponds to the reality of many poor and near-poor families that consist of a single mother with two children.  But that does not necessarily mean that the minimum wage is best defined in terms of this grouping.

            Other concepts about the minimum wage emerge through other “wage” terms that people may wish were synonymous with it.  “Starting wage” is one.  Opponents have argued that the minimum wage can fairly be viewed as a starting wage because most starting employees who earn it will soon get a raise.  (Those who are stuck at or near a minimum wage for years would not agree.) 

            At the other extreme are those who argue that the minimum wage should be the “living wage.”  This minimum/living wage, in a universal living-wage plan, would vary around the country to reflect local housing costs and should be high enough-- $9 to $12--to provide a family of three or four with adequate housing, health care, child care, food, clothing, and basic transportation.  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 in this writer’s view, to drop the minimum wage in place of a nationwide living wage system—or to think about the minimum wage as if it were synonymous with a family-support wage -- is to ignore the difference between the purposes that the two wages serve.  The distinction between the living wage as a local family wage and a federal minimum wage as a national rock-bottom is worth keeping. Governments adopted minimum wages 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, against employers paying unconscionably low wages that, without minimum wage legislation, would not be punishable.

            For these reasons it might be workable to consider the minimum wage in terms of one adult worker, rather than a family of any size.  After all, the needs of a single worker are a logical starting point if one is inquiring about a wage that will be sufficient but minimum.  (What was most tragic about the $5.15 federal minimum was not that it failed to keep a family of three above the federal poverty level but that it failed to keep even a single adult worker above an actual poverty level.)  In rural areas of states with low costs, a “living wage for one adult” from $7 to $9 will provide the adult with efficiency apartment, food, clothing, a cell phone, basic transportation, and basic health care. As discussed below, higher state minimums and some city minimums would be needed in the many regions where costs are higher. 

            The concept of a minimum wage determined by the basic needs of one adult without children may seem harsh. How harsh depends on one’s expectations about what function a minimum wage should serve and is one reason to pursue that discussion. To me, single mothers with two children need financial and social supports of more kinds than the minimum wage alone can be expected to carry, including a strong Earned Income Tax Credit and easily affordable heath care and child care.  And for families of four, a minimum wage based on the needs of a single worker does become a minimum family wage when two people are earning it. 

2.  Discuss various economic benchmarks by which to set and maintain the level of the minimum wage.

            A clearer definition of the minimum wage may help us justify the range of the minimum wage but it won’t set the actual number for us.  Costs of basic living, even for a single adult, vary too much.  What follows are two frameworks for setting a minimum-wage level—the first already recommended by many economists-- that are expressed in terms other than costs of living.

            The first method is to set the minimum wage at a percentage of average hourly wages nationally.  The $5.15 minimum wage equaled about 32% of average wages in 2006.  By comparison, the national minimum wage in the United Kingdom equaled 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.  To reach the 50% level today, the federal minimum would be about $8.00 per hour. 

            One risk of keeping the minimum wage at a relatively high percentage of national wages concerns inflation.  If all 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, around 45%, depending on economic factors—would be feasible.

            Another benchmark for the setting the federal minimum wage, less commonly suggested, is the well-established federal poverty threshold.  The threshold, because of its first formulation in the 1940s, is considered too low to serve as a realistic divider between the poor and the not-poor.  But multiples of the poverty threshold are frequently used by government and other agencies as cut-offs for everything from food stamps to AIDS assistance.  It would be reasonable to use a multiple—say, 150%--of the poverty threshold for a one-adult-two-children family as a basis for determining the federal minimum wage.  This approach would link the minimum wage more directly to poverty measurement than the wage benchmark would.  And it would have the advantage of increasing slightly each year, since the poverty threshold rises annually with inflation. 

3.  High-cost states should set their own minimum wages systematically above the federal minimum wage.

            The state increases of the last few years have created a distorted picture of the optimal relationship between the federal and state minimum wages.  States raised their minimums by sizable amounts to compensate for the bottom falling out of the value of the frozen $5.15 federal minimum wage.  Ideally, the federal and state minimum wages should work together to protect workers facing widely varying costs of living across the nation.  It is not too strong to say they must work together because no federal minimum wage by itself, no matter what its level, will be reasonably satisfactory for both business and labor in economies as varied as those of rural Montana and mid-town Manhattan.

            I think that the federal minimum wage should be viewed as wage protection primarily for workers in low-wage states--Alabama, Kentucky, Louisiana, South Dakota, South Carolina, Montana, Utah and others—where business and political forces seem least likely to set an adequate wage floor on their own.  The onus then falls on those states with higher living costs to adopt a formula keeping their minimum wages appropriately higher than the federal one.

            A few states already have such regulations on the books, although their formulas have been overshadowed by the recent need for large state hikes.  In Massachusetts, the state minimum is set at 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.  Through such federalism, a national minimum wage can protect the nation’s lowest paid workers while high-cost states can protect their own workers from, in effect, being exploited by the same figure. 

4.  Establish a mechanism for regularly increasing the federal minimum wage.

            Regular increases in all minimum wages are needed not only to protect workers but because the longer a minimum wage is stagnant, the greater the eventual increase will usually be (from $5.15 to $7.25 is a 41% increase), and thus the greater will be the impact on businesses--and the corresponding political resistance.  Small, regular increases are standard procedure in some major federal programs, and they should be for both federal and state minimum wages 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.  The same should hold true for minimum wages.

            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.  Indexing has been adopted in ten states, has been considered in many others, and has been recommended for the federal minimum wage by the Economic Policy Institute.  In 1977, Jimmy Carter sent Congress a federal minimum wage bill that included indexing, but Congress rejected the provision.  Indexing a minimum wage is a concept we are familiar with even if we don’t always accept it. 

            The other method for regularly raising the federal minimum wage is through the formation of a commission composed of representatives from business, labor, and government.  While the idea of such a commission is today relatively neglected, the pros and cons should be part of the discussion, along with indexing, of how to provide for a stable federal minimum wage.  The first federal minimum-wage legislation, back in 1938, almost included such a commission, but it was dropped from the final bill.  In 1989, Congress passed a minimum-wage bill that included a commission, but the first President Bush vetoed it—not because of the commission, however, but because he thought the wage increase was excessive.  Today, one state, New Jersey, has established a five-person commission to recommend annual minimum-wage adjustments for the state.  In other countries, minimum-wage commissions are far more common than rigid indexing of the national minimum wage. An outstanding model is Great Britain’s Low Pay Commission, which since 1999 has annually recommended changes to the government, which has implemented them.

            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.  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 (and as Britain has shown), 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.

            Either indexing the federal minimum wage or establishing a commission to study annual adjustments to it would be a far better system than the current one.  Both approaches have advantages and limitations and so both should be part of the discussion. 

5.  Set sub-minimum wages for teenagers.

            Considering how relentlessly minimum-wage opponents protest the damage that increases in the minimum wage appear to inflict on working teenagers, it is surprising that neither opponents nor supporters say much about an obvious solution: reduced minimum wages for workers in their teens.  Congress heard, hotly debated, and finally rejected many proposals for such a youth wage during the 1980s.  Opponents (including Senator Edward Kennedy) argued that while a youth differential might boost youth employment, it would certainly harm the employment of older workers. The youth wage was recast briefly as an "opportunity wage" and then as a short-term "training wage" which we have today: Newly hired workers under 20 years old may be paid at a reduced rate for 90 consecutive calendar days.  The federal minimum is also waived for a variety of jobs often held by teenagers, such as baby-sitting.  

     But the hypothetical risks of a general youth wage should certainly be revisited in light of the actual experience in Great Britain with such a system.  Great Britain has not one but two sub-minimums:

• the Adult rate of the equivalent of U.S. $9.72 (2006) for those 22 and older
• the Development rate equal to $8.08 for 18- to 21-year-olds and to adults during their first six months on a new job with a new employer
• a 16- to 17-year-old rate equivalent to $5.99 for those under 18 who have completed compulsory education (at 15 or 16, as in the U.S.). 

The Low Pay Commission assesses the two wages for teenagers carefully for their impact on teen employment and school enrollment.  But a problem with teenagers cutting in on adult employment has not arisen. 

                                            --Brock Haussamen; revised November 2007