Mellody’s Minimum Wage Report

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    In today’s “Money Mondays” segment, Mellody Hobson discusses minimum wage.

    What  would a hike in minimum wage mean?

    Well, as you may know, there is a debate raging in and out of Washington about the need to address income equality, and one of the proposals put forward by President Obama in the State of the Union was to increase the federal minimum wage from the current $7.25 to $10.10, and then to index it to inflation so it doesn’t fall behind again.

    On Tuesday, the Congressional Budget Office – a nonpartisan entity – released its report on the impact of such a move, and it has caused quite a stir. And like everything we talk about here on Money Monday, the report and the policy could have a big impacts people’s wallets!

     What did the report say?

     It was, on its face, mixed. The report said that beefing up the minimum wage to $10.10 will cost the country some jobs – the CBO estimates 500,000 fewer jobs will be created because of such a move. But that actually may not be as big of a deal at the moment as more and more baby boomers leave the workforce.

    But the CBO report has another number that is much more important than 500,000. And that is 16.5 million. The CBO report finds that about 16.5 million low-wage Americans would see an increase in their earnings as a result of the hike in the minimum wage. The report also showed that raising the minimum wage from $7.25 per hour to $10.10 per hour could lift about 900,000 Americans out of poverty!

    This all sounds like good news to me! Why wouldn’t people get behind this?

     It does seem pretty palatable, though there are certainly some areas that would be impacted. One of the most straightforward arguments against it is that we have not been seeing the strong jobs growth from the economy that we need to fully rebound, so why would we want policies that make it harder? That is one argument against. And certain industries, like the restaurant industry and retailers note that their costs would go up, and therefore their prices could. But I don’t think it’s the whole picture.

    One shift in outlook we are seeing take place in the argument about the minimum wage debate is one of whether the current minimum wage works. If a minimum wage job is no longer a living wage job, does it really help that worker. This proposal, at the very least, has the potential to spark a debate amongst the policy community. An article in the New York Times made the point that policy makers should worry about the quantity of jobs, and work to make sure policies encourage job creation – But they also have to worry about job quality, especially in the low-wage sector! This is where the decline in the real value of the minimum wage, the increase in earnings inequality – meaning a smaller portion of the economic pie finds its way to the low end of the wage scale – and the lack of leverage the lower wage work force have with employers has corresponded with negative pressure on wage trends for decades.

    Any other things we should know about the minimum wage debate?

     Well Tom, I will leave you with a few more numbers: Overall real income would rise by $2 billion. For families whose income will be below the poverty threshold under the current minimum of $7.25, real income would increase, on net, by $5 billion, boosting their average family income by about 3%. For families with incomes between 1 and 3 times the poverty threshold would net $12 billion in additional real income! These are big numbers, and of the utmost importance for American workers!

    Lastly: Any increase in income means more money to spend for workers. And while this spending wouldn’t be on luxury goods, it would mean more consumer spending in neighborhoods that could use it, and by implementing a living wage, would perhaps mean less pressure on social support programs.

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