Raising the Minimum Wage is a Step Toward Economic Freedom

Feb 20, 2013Annette Bernhardt

Opponents of a minimum wage increase imagine an economic reality very different from the one millions of American workers experience.

The good news from last week is that President Obama called for raising the federal minimum wage – long overdue and desperately needed for low-wage workers who have seen their real earnings decline during the recovery. The bad news is that his announcement set off a flurry of blogging on the economics of the minimum wage, and, predictably, not a small amount of armchair theorizing.

One particular contribution seems innocuous at first, but in fact frames the issue in an unhelpful and potentially misleading way. In his research round-up last Thursday, Matt Yglesias argued that the best case against raising the minimum wage might be economic freedom:

You've got a guy who wants to give someone $8 to do something that'll take an hour and another guy who wants $8 and is happy to do the thing in exchange for the money. Now Barack Obama's going to fine them for agreeing to trade $8 for the work? Seems perverse. In the real world, obviously, the perversity of this is greatly mitigated by the existence of formal exemptions and weak enforcement. If you pay a neighbor's son $10 to mow your lawn and it takes him 70 minutes, you're going to be able to get away with it even in a world of a $9 minimum wage. Which is probably as it should be.

In this theoretical world, the informal economy is a place where teenagers happily mow lawns and babysit for a little extra cash. But in the real America, we are talking about a large and growing sector of unregulated work, where every day, millions of adults work for subminimum wages and no overtime, often in unsafe and hazardous workplaces. Far from peripheral, this sector spans the core industries of our economy, from hotel housekeepers, dishwashers, retail sales workers, domestic workers, and home health aides to janitors, meat processing workers, taxi drivers, warehouse workers, and construction laborers.

And the violations of employment and labor laws are systemic. A landmark 2008 study of more than 4,000 low-wage workers in New York, Chicago, and Los Angeles found that 26 percent had been paid less than the minimum wage in the preceding week, 76 percent had been underpaid for their overtime hours, and 70 percent did not receive any pay at all when they came in early or stayed late after their shift. Also important for this discussion: when workers made a complaint to their employer about wages or working conditions, 43 percent were retaliated against. Not surprisingly, many more never complained in the first place, out of fear that they’d be fired or turned over to the immigration authorities.

So this is not a world where workers are “happy to do the thing” for subminimum wages. It is not a world where workers and employers come to the wage negotiation with anything even vaguely resembling the equal power one would need to call it economic freedom. (And how low are we willing to go, by the way? Some have called for states to be allowed to experiment with $5 an hour minimum wages – but why stop there? What about $1 an hour? Or abolishing child labor laws, as a 2011 Missouri bill would have done?)

Moreover, this is not a world where weak enforcement of our laws is a good thing. Between 1980 and 2007, the number of federal wage and hour inspectors declined by 31 percent and the number of enforcement actions fell by 61 percent. By contrast, the civilian labor force grew 52 percent during this same period. And while the U.S. Department of Labor has added more investigators under the Obama administration, the current federal staffing level of 1,006 is still below its 1980 peak. (The picture looks even worse for enforcement of health and safety laws.)

In the same vein, there is nothing to cheer about when, for example, 2.5 million home care workers are exempted from minimum wage and overtime protections, which has driven down job quality, increased turnover, and caused staffing shortages in this critical industry.

So let me suggest a different definition of economic freedom. Under this definition, economic freedom means being able to earn a living wage, being able to pay for electricity and rent, being able to afford child care and health care, being able to save for college, and being able to put enough aside for retirement. In short, “freedom from want,” which not coincidentally comes to us from FDR, the father of the minimum wage.

Back then, the fight was to set a strong wage floor and enforce it, against arguments that businesses couldn’t compete without child labor and sweatshops. Now the fight is to set a strong wage floor and enforce it, against arguments that multinational corporations with billions a year in profits can’t afford to raise their wages to the poverty line. In both cases, the stakes remain the same: the strength of our families, our economy, and our respect for the labor of others.

Annette Bernhardt is a Fellow at the Roosevelt Institute and policy co-director of the National Employment Law Project.

 

Housekeeper image via Shutterstock.com.

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