On Tuesday, the Senate Committee on Health, Education, Labor, and Pensions held a hearing to commemorate the 75th anniversary of the Fair Labor Standards Act of 1938 (FLSA), which established a national minimum wage, restricted the hours that children could work, and guaranteed “time-and-a-half” overtime pay. In light of this, the senators and the panelists debated Chairman Tom Harkin’s (D-Iowa) Fair Minimum Wage Act of 2013, a bill with 30 co-sponsors that would raise the federal minimum wage in order to reduce poverty and inequality.
Senator Harkin noted that every president since the FLSA except Ford and Reagan has signed a minimum-wage increase into law, and another increase is long overdue. The minimum wage has one-third less buying power now than it did in 1968, and full-time minimum wage workers earn $14,500 a year, a salary that places them under the poverty line.
Hon. Seth Harris, the acting secretary of labor, pointed out that contrary to popular belief, only around 19% of workers earning between $7.25 and $9.00 per hour are teenagers. Sixty percent are working women, many of whom are raising children, and many families depend on minimum-wage jobs: In 2011, minimum-wage workers brought home 46% of their household’s income. He said that almost 70% of the U.S. economy is built on consumer spending, and low-income workers have a higher propensity to spend. Because of this, raising the minimum wage would increase consumer spending, thereby stimulating the economy. He then cited a Federal Reserve Bank of Chicago study that found that raising the minimum wage by $1 would increase household spending by $2,800 in the following year.
Dr. Michael Reich, an economics professor at UC Berkeley and the director of the Institute for Research on Labor and Employment, agreed, stating that the FLSA helped stabilize the economy and lamenting that minimum-wage jobs are not stepping stones to the middle class like they used to be. He contended that raising the minimum wage doesn’t kill jobs, but rather, kills vacancies, as raising the minimum wage reduces turnover. He said that many of the studies that showed poor employment effects did not utilize proper control groups and that newer studies show that raising the minimum wage is not, in fact, detrimental to employment rates.
James Sherk, senior policy analyst in labor economics at the Heritage Foundation, disagreed. He cited American Samoa’s increased minimum wage and decreased employment thereafter as an example of raising the minimum wage as poor policy. He said that an increase would benefit many teenagers and would not effectively reduce poverty. The poor are better off using food stamps and other public safety nets, he claimed.
The senators who spoke at the hearing, including Chairman Tom Harkin (D-Iowa), Ranking Member Lamar Alexander (R-Tenn.), and Senators Elizabeth Warren (D-Mass.), Patty Murray (D-Wash.), Bernie Sanders (D-Vt.), Chris Murphy (D-Conn.), and Bob Casey (D-Pa.), were very troubled by the economists’ contradictory studies, or as Harkin called them, “lies, damned lies, and statistics.” They mentioned their states’ high minimum wages and low unemployment rates both relative to the national average, and lauded a higher wage as a “pathway to independence” (Murphy) that would "benefit 30% of all the children in the country” (Casey). Sen. Murphy dismissed the American Samoa case as a bad analogy, and Sen. Sanders criticized Sherk and the Heritage Foundation for being hypocritical, as the conservative think tank calls for a huge reduction in food-stamp spending while Sherk was calling it a better alternative to poverty reduction. Alexander was the only senator present who opposed raising the minimum wage.
President Obama says that “no one who works full time should live in poverty” and calls for increasing the minimum wage to $9 and indexing it to inflation. Harkin’s bill calls for raising it to $8.20, then $9.15, then $10.10, and then indexing it thereafter. That may sound high, but if the minimum wage had kept up with inflation since 1968, it would be $10.50 right now. How this higher wage would have affected the state of the economy, however, continues to be speculative and controversial.