Madison is in the middle of an active debate about the minimum wage. The city council has been debating a proposal to increase the minimum wage in Madison from $5.15 per hour to $7.75 per hour. The local newspapers are involved. See here and here. This Saturday, the Law School leaps into the fray with a program entitled "DO HIGHER WAGES EQUAL UMEMPLOYMENT? The Living Wage Debate: Just a Theory or a Growing Reality."
The positions are familiar: proponents argue that minimum wage employees need to earn a living wage, while opponents contend that employers will reduce hours or fire employees to shave excess labor costs. An additional wrinkle here is that Wisconsin Governor Jim Doyle is advocating a statewide minimum wage (though he has rebuffed the legislature's attempt to constrain municipalities).
As you might expect, the facts about the effects of a minimum wage hike are less clear than all of the participants in this debate would have us believe. This is not a particular area of expertise for me, so I will tread gently. A recent study of data from Brazil observes wage compression in the wake of a national minimum wage. In addition, the study finds that a minimum wage increase "does not always have a significant effect on employment and it is not always negative." Both the compression effect and the employment effect seem generalizable beyond Brazil. But do they translate to localized minimum wages?
One thing that seems obvious to me -- and is part of the motivation for Governor Doyle's proposal for a statewide minimum wage -- is that Madison will place itself at a competitive disadvantage vis-ŕ-vis surrounding communities if it raises the minimum wage. Several communities, including my home town of Middleton, are well situated to attract businesses that are not captive to Madison, including restaurants. We will welcome them with open arms.
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1. Posted by Derek on March 29, 2004 @ 11:53 | Permalink
Here are some general stats about poverty that might illuminate any discussion on minimum wage.
If we were to adjust the 1968 minimum wage (the highest M.W. in post-war era) for inflation, it would be between eight and nine dollars. Were we to adjust for productivity gains in the last 35 years, and assume some of those gains innured to workers, that number goes as high as 12 or 13 dollars per hour. (I got this from Prof. Rogers here at UW)
In 1995, 38 million Americans lived below the poverty line ($11,852 for a family of three; $15,150 for a family of four). That number includes over one-fifth of all American children.
Additionally, another 30 million Americans live at or below 150% of the poverty line.
As for the poverty line itself, that's somewhat of a murky number. Adopted in the 1960s, it is arrived at by multiplying the cost of the minimum adequate diet by three. Several economists recommend that 150% of the poverty line is a better standard. This includes families who are buying nothing but the bare minimum--no movies, no vacations, no piano lessons or summer baseball teams--but making it.
As for the proposal here in town, I can't help but feel that raising the minimum wage is just a Madcentric fit of good intentions that bears an inordinate risk of harm to everyone, especially to the most vulnerable--the poor. Truly, I wish solving America's poverty problem were this easy, but I hesitate to trust the "studies" conducted by the proposal's supporters.
2. Posted by Gordon on March 29, 2004 @ 11:59 | Permalink
Thanks, Derek. Yes, were it so easy ...
This debate about minimum wage goes back so far. I have resisted blogging about it because it seems like we have made so little progress. It seems to me that the debate is more symbol than substance ... from both sides.
3. Posted by Adam on April 5, 2004 @ 0:24 | Permalink
While I am in favor of government using its powers to help the poor whenever possible, I basically think that raising the minimum wage in Madison will not help many poor people, and quite likely will do more harm than good.
1. Most people earning less than $7.75/hr. are teenagers working at one of their first jobs, who still live at home and use their wages as mostly discretionary income.
2. Worst of all, having a city-only minimum wage (as opposed to a state or national one) simply reinforces the notion that Madison is hostile towards business. Businesses continually move away from Madison (Rayovac, Epic, etc.), but very rarely move to Madison.
The City Council has its heart in the right place, but they appear to do more harm than good more often than not.
Since they only earn $6,771 annually in salary as councilmembers, most people would have no interest in sitting on the council, and I think that those who are interested run for a seat to support and promote their own pet causes (economic justice, no growth, fair housing, etc.)
-- sometimes to the detriment to the city as a whole. Although such causes are just, the councilmembers often fail to see the big picture.
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