Minimum Impact

A $7.25 minimum wage means a lot politically. It just doesn't mean much economically.
by | January 1, 2007

By the time you read this, the newly installed Democratic Congress will be hard at work -- or maybe even finished -- making good on one of its headline campaign promises: to boost the federal minimum wage from $5.15 an hour -- where it has lingered for a decade -- to something in the neighborhood of $7.25.

President Bush, for his part, expressed willingness immediately after the November elections to work with the Democrats on the minimum-wage issue. Whether he signs a law boosting the wage probably depends on whether he can trade $2.10 an hour for something of legislative or political value to him.

There's no question that the minimum-wage debate helped Democrats in the 2006 election, but that's not the only interesting aspect of this debate. One of the inescapable realities of minimum wage is that it represents yet another of the issues on which the feds are now following states and localities, and not leading them.

Twenty-six states and the District of Columbia have already boosted their wage floors, six of those states having signed on through ballot initiatives in this past election cycle. That the federal government is just now turning its attention to the matter is testimony to how gridlocked the capital has been for the past 12 years, and to the political potency (until last year) of corporate arguments that any boost in the minimum wage would lead to a net reduction in American jobs.

Now that the logjam seems to be breaking up, it's worth pondering whether states might soon hand back to the Democratic Congress a whole series of issues -- ranging from environmental protection to business regulation to tax policy. For the next two years, that will depend in large part on how acquiescent the lame-duck Republican president chooses to be. But there's reason to suppose that minimum wage won't be the only subject on which the new Congress decides to follow in the direction states have been leading.

In truth, action on many of those subjects may have more substantive economic impact than the increase in the minimum wage will have. Assuming they are able to enact a $7.25 wage floor, Democrats will be able to say that they have honored their commitment to deliver for working folks -- boosting the wages of an estimated 15 million people.

But the fact will remain that a 40-hour work week at $7.25 an hour adds up to $15,080 a year. Even calculating in potential sweeteners such as the earned income tax credit, it's not much of a step toward financial security in an era of escalating rents and high health insurance, transportation and education costs.

For a wage increase to have a major impact on the lives of lower-income families, it would have to be a much larger increase than $2.10 an hour -- and most important, it would have to be indexed to inflation, so it does not lose real value year after year, as has been true of the existing $5.15 minimum. Those points will come up during the minimum-wage debates in Congress over the next few weeks, but they are unlikely to have any real impact on the final decision. The parameters of policy change were essentially fixed in the election campaigns last fall, and they were fixed in the neighborhood of $7.25.

Democrats were willing to take issue with the anti-minimum-wage consensus of the corporate community, but there was always a limit to how aggressive they were willing to become. That's because as the incoming congressional majority, Democrats are not only the party business needs to deal with to get its way in the legislative process but also a party that needs a reasonable level of corporate campaign generosity if it wants to maintain its majority in 2008 and beyond. Business groups, seeing the handwriting on the wall, started shifting their political investment strategy toward Democrats last year even as control of Congress was still in play.

Boosting the minimum wage will be a symbol, perhaps a politically potent one. But in substantive terms, it will be a marginal change at best. One might hope that the migration of other issues from the states to the new Congress will result in more significant action.

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