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U.S. desperately needs a higher minimum wage

Posted By Ellen Ratner On 01/19/2014 @ 4:54 pm In Commentary,Opinion | No Comments

There are two things that make me nuts: One is not extending unemployment benefits before Congress took a recess, and the other is not raising the minimum wage.

We can start out with the minimum wage. This has been a rallying cry of Democrats and other people who are actually concerned about the economy. It goes back to Henry Ford paying $5 per day to his workers 100 years ago in January 1914. It meant he doubled the wages of his workers. He reduced turnover, his employees bought his cars and he got to pick from the best possible employees. Most importantly, he is credited with building a middle class.

The minimum wage now stands at $7.25 cents per hour, and was last raised in July 2009. Non-farm employees depending on tips are paid a minimum of $2.30, and that has not been raised since 1977! Farm employees get $2.20 per hour. No one in the United States can live on $2.20 per hour, and it is pretty much impossible to live on $7.25 per hour unless there are two people or more living together, each earning at least $7.25 per hour.

So, what would be the benefits of raising the minimum wage? The folks at Time for A Raise have run the numbers, and they tell a story of the benefit to the economy that means that our entire economy would benefit.

They say, “Raising the minimum wage from $7.25 an hour to $8.50 an hour, would inject an amazing $9.5 billion extra spending power into the economy. (This assumes all 3.8 million workers are making exactly $7.25, that each additional dollar earned is spent, and that none of the 3.8 million are earning wages below the federal minimum wage – even though there are nine states that are below this level or which have no minimum wage law.)” You can do the math, if they minimum wage were raised to $10 per hour, they say it would put an additional $60 billion over two years into the economy.

We can even assume that the figures that have been bandied about by some of the mainstream press are plain wrong and that 70 percent of our economy is not really consumer spending, but it is safe to say that increasing the minimum wage would not be government spending and would most likely go directly for consumer goods, food, etc. This would be a wise investment for our nation.

Lawrence Mishel and Heidi Shierholz of the Economic Policy Institute said, “We find that continuing the extensions through 2014 would generate spending that would support 310,000 jobs. If this program is discontinued, the economy will lose these jobs.

They further reason, “We estimate it will cost roughly $2.1 billion per month to continue the current extensions, or $25.2 billion total in 2014. However, while it would cost roughly $25.2 billion to continue the extensions, the economic boost would be much greater because this spending would have a large “multiplier” effect. Long-term unemployed workers, who are almost by definition cash-strapped, are likely to immediately spend their unemployment benefits. Unemployment benefits spent on rent, groceries, and other necessities increase economic activity, and that increased economic activity saves and creates jobs throughout the economy.”

It doesn’t take a Ph.D. in economics to understand the above math. Yes, Congress would have to spend more money and, yes, some members are insisting on offsetting the spending on continuing unemployment benefits by taking it from other places, and that is where it gets interesting. The Democrats want to close some tax loopholes, and the Republicans want to cut the money from the federal budget. We all know there is still a lot of pork in the federal budget, but why not tackle unfair tax loopholes? It sure doesn’t benefit the working person to leave the loopholes in the tax law.

Talk-show host Howard Monroe pointed out that this could be a win/win for Republican members of Congress simply by saying, “Obama did not bring the economy into recovery, so I had to vote for extending unemployment.”

The GOP has long held onto the expression that “A rising tide lifts all boats” and named a publication and a television broadcast “Rising Tide.” If they were true to their principles then they should support both the minimum wage increase and the unemployment extension. That would prove they really believe that a rising tide lifts all boats.

If they don’t take action, it shows that it was just publicity to sound good without action that would change American’s lives.

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