Exploring the politics of the minimum wage.
by Oren M. Levin-Waldman For the most part, since its inception in 1938, the minimum wage has hovered at around 50 percent of average annual hourly wages for product,on and non-supervisory workers. Between 1981 and 1989, the minimum wage fell below 40 percent, and it again fell below 40 percent between 1990 and 1996. For some, the failure of the minimum wage to keep pace with inflation is a matter of deliberate government policy aimed at creating a low-wage economy [Piore 1995; D. Gordon 1996; Prasch 1996]. For others - mainly the mainstream of the economics profession - the fact that the minimum wage was not increased is a testament to the soundness of economic analysis that holds minimum wage increases to be detrimental to the economy as a whole. Both perspectives, however, may be problematic. The first assumes that government is a monolithic structure and can easily reach a unitary decision. Government is not. At least in the United States, it is a collection of institutions, actors, and processes that occasionally achieve some coherence on the basis of consensus. More often than not, however, different actors in different institutions follow their own respective agendas. And the second view is problematic because it assumes that economic models alone drive the policy process. They do not. Policy is a function of a mix of variables and is highly contingent on the various interests and actors involved [Kingdon 1984; Stone 1988]. It is more the case that interests rely on economic models when they serve to buttress their arguments. By appealing to a model, an elite can cloak its selfish interests in language that may appeal to the larger public interest. In this paper, I intend to argue that the minimum wage, as much as it is a serious economic issue, is above all else a political one. The minimum wage is a political issue on several levels. On one level, there are the politics surrounding the choice of models. On another level, there are the political interests of those who engage in the debate. Unlike entitlement programs, the minimum wage is not indexed to inflation, but requires an act of Congress for changes to be made. Congress, however, is comprised of members whose primary obligation is to serve the constituents of their districts [Mayhew 1974; Kau, Keenan, and Rubin 1982]. If it is not in the interest of their district or if it is not in the interests of those who contribute to their campaigns - regardless of party position - members will vote against increasing the minimum wage. Another way to state this is to say that even if a member's party favors an increase in the minimum wage, that member may still be inclined to vote against it if his or her constituency has an interest in not raising it. The purpose of this paper is to look at a variety of political issues surrounding the minimum wage. I specifically examine how the politics in the choice of methodological models can lead to different ideological positions, which ultimately will get played out in the political arena. To this end, I have organized this paper as follows: I first examine the competing models and the ideological implications that flow from each. From there I explore why it is that one particular model has become the political focus of the debate at the expense of others. What I hope to show is that because good data on the minimum wage have been so lacking, the issue has been ripe for political manipulation. Nowhere do the politics of minimum wage show themselves to be of greater importance than in those regions of the country with "right-to-work" laws. The final section of the paper examines the voting patterns of members of Congress. It is no secret that Democrats have traditionally favored minimum wage increases, while Republicans have opposed them. The focus of this paper is on the exceptions and the specific states they are from. What I intend to show is that Democratic members of Congress, when they come from "right-to-work" states, tend to vote against minimum wage increases even though Democrats traditionally favor it. Similarly, Republican members, when they come from those states with higher union density, tend to vote for minimum wage increases even though Republicans traditionally oppose it. This is not to say that the theoretical economic models do not have a bearing - indeed, they may, particularly in the absence of strong constituent interest one way or the other. On the whole, though, members listen to their constituents. What I suggest is that given the fact that empirical data on the effects of the minimum wage have been ambiguous at best - a fact that in and of itself makes the choice of models political with regards to implications - it is more likely that minimum wage increases will occur when there is strong political support for them. That is, theoretical constructs can continue to live in the absence of data that can either prove or disprove them. As long as theory is all we have, the strength of the theoretical constructs in the political arena is contingent on the strength of the respective interests behind them. Competing Models Politics, as Harold Laswell [1936] stated so long ago, is about who gets what, when, and where. Stated in terms of the minimum wage, it is about who benefits from a minimum wage increase and who bears the costs. The economics literature is replete with studies demonstrating the ill effects of the minimum wage on a particular segment of the labor market. And while these studies are predicated on a particular model, the fact that this particular focus has been taken ultimately says more about politics than the merits of the model per se. Data on the effects of the minimum wage are simply inconclusive [Levitan and Belous 1979; Brown 1988; Kennan 1995]. Approaches to understanding the minimum wage can be synthesized into three basic models, all of which are microeconomic. The first model, a perfect competitive model, is essentially a traditional textbook understanding of the wage. The other two could be said to represent alternatives to it. The first alternative could be referred to as a monopsony model, as it suggests that those who employ minimum wage workers, because they are the principal employers of minimum wage workers, enjoy market power and are thus in a position to pay low wages [Card and Krueger 1995a, 312-318]. The second alternative model could be referred to as an efficiency wage model, as it suggests that efficiency gains are usually achieved in the form of higher productivity. Although productivity is difficult to measure, efficiency may be apparent in reduced costs associated with monitoring those employees who shirk [Shapiro and Stiglitz 1984]. Competitive The competitive model is essentially the neoclassical analysis contained in standard economics textbooks, which holds the costs to society of raising wages to be greater than any benefits. It is predicated on the assumption of perfectly competitive markets in which market clearing wages can be achieved when the demand for labor is exactly equal to the supply of labor. In such a market, there is no such thing as unemployment because the price of labor will drop to the point that all available labor can be consumed, and this is the point at which the economy achieves full employment. At this intersection, an equilibrium wage exists that enables both firms and workers to maximize profits and utility. Should the supply of labor increase, there will naturally be a reduction in the cost of labor until supply once again equals demand. A wage floor, however, prevents the cost of labor from dropping, thereby forcing the firm to reduce its demand for labor, with the result being unemployment. In a competitive market, each worker receives the value of his or her marginal product. A minimum wage, if it is effective, will do one of two things: it will either result in the layoff of those workers whose value is less than the minimum, or it will result in an increase in productivity among low-efficiency workers [Stigler 1946]. Consequently, the minimum wage ends up hurting the low-wage workers - precisely those whom it was intended to help. As the cost of labor is increased, the demand for labor decreases. Only if the demand for goods and services on the part of consumers is increased can we expect an increased demand for labor that will effectively bid up wages. A minimum wage, then, benefits some - those who will be paid more money - at a cost to others - those who will either lose their jobs and/or not be able to find other jobs because employers do not believe their value to be worth the new minimum wage. A policy that artificially raises wages to help some at the expense of others is simply inefficient. Even if there is some outward appearance of benefit to be derived from an increase in the wage floor, there will invariably be a cost to be borne whether in the form of job loss, lost opportunity for jobs, lost benefits, or increased output per man-hour - the demand for higher productivity. The problem with this model is that it represents a theoretical construct with characteristics that simply do not exist in the real world. Although the minimum wage is assumed to be inefficient because it leads to an underutilization of labor in the aggregate, the competitive model fails to address the consequences of a world where wages could be allowed to drop to a level whereby demand would be equal to supply. In the real world, the minimum wage is likely to affect different people differently. How low do wages have to drop in order for the supply and demand for labor to intersect? What happens, after all, when wages completely bottom out? Is this not ultimately the cause of labor market instability? Is this not the source of poverty - that people do not receive enough in wages to provide for themselves, and in turn are unable to demand goods and services? And is this not ultimately the source of depression? More to the point, the model of perfect competition assumes the minimum wage to be besides the point because the source of low wages is not a function of distorted market power, but the failings of individuals. That is, they simply are not worth more than the low wages they have been receiving. Therefore, it is up to them to improve themselves, and a minimum wage cannot solve this problem; rather, all that it can do is artificially inflate wages, thereby absolving low-wage workers of their responsibility for themselves. As the locus of the model is on the individual, it totally negates structural variables that may affect individual behavior. Monopsony This model assumes there to be something called market power, and because of that power firms are in a position to pay low wages [Card and Krueger 1995a]. An increase in the wage would then serve to empower low-skilled workers, and this in turn may result in some supply-side effects. This model, which has by and large been ignored, suggests that there are potential benefits from increases in the minimum wage that may counter most of the negative consequences. Among the potential benefits is that individual behavior will be affected because higher wages will offer greater incentives to work. The higher the minimum wage, the more likely it is to attract individuals into the labor market. Such an approach then becomes a powerful one for assisting the poor. According to this model, the minimum wage might be viewed as a positive vehicle for lifting those at the low end of the wage scale out of poverty. It suggests that an increase in the minimum would make low-wage/low-skill jobs attractive to those who are currently on welfare [Ellwood 1988; Bane and Ellwood 1994]. Hence the principal reason for raising the minimum wage is so that those at the bottom end of the income distribution can earn a wage that places them above the poverty level. The problem with this argument, as I will suggest later, is that it is essentially a poverty argument, and poverty arguments, especially during the last 20 years or so, have lost their political appeal. Efficiency Another alternative to the competitive model, the efficiency model, holds that higher wages lead to greater efficiency because workers become more productive. Individuals essentially respond to changes in expected net income or wealth, or they respond to net prices of working and saving, which may be affected by transfer programs. Although it is believed that current transfer programs, for instance, do have an impact on overall labor supply, it is difficult to conclude precisely just what that impact may be [Danziger, Haveman, and Plotnick 1981]. Therefore, raising the minimum wage might provide a positive inducement to work. Moreover, they will work harder and thus be more productive. Often referred to as the "Webb" effect after Sidney Webb, the efficiency model argues that a wage floor can lead to greater efficiency because workers become more productive. Although an increase in the minimum wage may well result in a wage exceeding the marginal product of the worker, the employer now has incentive to find ways to increase productivity either by getting workers to produce more or by substituting technology for labor. The worker, too, has an incentive to improve his or her skills so the value of his or her labor will justify the new wage [Webb 1912]. Subsumed under this model is the notion that a minimum wage would also make workers more productive because it would better enable them to maintain themselves physically, which in turn would sustain them spiritually. Although this model does not receive much attention today, it was very influential during the early part of the twentieth century, and it figured prominently in an array of state reform efforts that ultimately culminated in the Fair Labor Standards Act of 1938. And yet, despite its lack of attention, it nonetheless assumes the supply and demand function contained in the competitive model, but essentially turns the assumptions flowing from it on their head. That is, those who are forced to pay higher wages would simply be forced to find ways to improve their productivity [R. Gordon 1995]. More importantly, it calls attention to the fact that society, through a wage policy, is essentially expressing a value preference. On one level, it would represent a preference for minimum wages above some poverty threshold. But on another, it might represent a preference for a higher-wage economy on the assumption that a higher wage floor might offer managers incentive to provide the type of on-the-job training that would make their workers more productive. Michael Piore and Charles Sabel have couched this choice as the difference between the low and high roads. The low road essentially assumes a mass production industrial economy in which most functions can be performed by cheap and low-skilled workers. If labor is not cheap at home, work can easily be outsourced to those locations where labor costs are substantially lower. The high road, by contrast, would entail developing an innovative information-based economy with a flexible and high-skilled labor force able to command higher wages. The skills, and ultimately productivity of the labor force, would be developed through education and training programs [Piore and, Sabel 1984]. Although a higher wage alone could not stand as the sole path toward a high-wage economy, it might provide a necessary stick for employers to invest in the necessary education and training for their workers to make them "worth" the new wages. Such arguments were quite persuasive during the early part of the century when many in industrial mass production were earning anything but a "living wage." The problem is that productivity is difficult to measure and with the advent of greater empiricism to the evaluation of the minimum wage during the 1970s and 1980s, it has become easier to focus on a particular segment of the labor market. Politics of Models The principal focus of much of the empirical research has been on the youth labor market. It has become the prevailing wisdom that the minimum wage does indeed take its greatest toll on the youth labor market, that a binding wage floor does reduce employment for younger and less-skilled workers [Kosters and Welch 1972; Welch 1974, 1978; Meyer and Wise 1983]. Moreover, these studies have been buttressed by a minimum wage study commission that has not only found that a 10 percent increase in the minimum wage leads to a 1-3 percent reduction in employment among teen-agers, but has advocated the use of subminimum wages for teen-agers [Nordlund 1997]. And while others have concluded these timings to be sound, they have also conceded that the effects are perhaps proportionately smaller among 20-24 year olds [Neumark and Wascher 1992], and that adults on balance appear to be better off under a wage floor. And yet, despite the smaller effects among adults, they have not been the focus of much of the research. For Sar Levitan and Richard Belous, this has been a disastrous effect because the consequence has been to obscure the potential benefits that might accrue specifically to the working poor [Levitan and Belous 1979]. The principal argument for not focusing on the potential benefits to the poor, however, is that most of the minimum wage workers are not adults. Much of the data on who earns the minimum wage show that only a small fraction of the labor force earns it and that most of them are teen-agers. Earners of the minimum wage are for the most part teen-agers or contributing members of a household budget [Burkhauser and Finegan 1989]. Those who fall into the category of the dependent poor are not currently employed in those jobs, even though those are the jobs for which they would most likely qualify [Burtless 1995]. On these grounds, it is often concluded that raising the minimum wage would not greatly help the poor. Daryl Shapiro, for instance, posed the question in terms of whether increasing the minimum wage would help the homeless. It would not, he concluded, because minimum wage workers generally are not primary wage earners in their families. He noted that in 1986 just under 2 percent of husbands and 70 percent of wives earned the prevailing minimum wage. It was more likely that other family members - sons and daughters - would earn the minimum wage. In 1985, only 18.5 percent came from families with incomes below the poverty line; 11.6 percent had incomes between 100 and 150 percent of the poverty line; and 69.8 percent had incomes considerably above the poverty line. Since most of the homeless do not have jobs, it is doubtful that they would be helped by an increase in the minimum wage [Shapiro 1990-91; Burkhauser and Finegan 1989]. Studies like this, however, reveal a narrowness of focus. The assumption is that because few homeless people have minimum wage jobs - or that the homeless population is not part of the minimum wage labor market - an increase in the minimum wage would not be of any help. But perhaps the question should be posed differently: Would they have become homeless had there been decent paying jobs? And doesn't the level of the minimum wage in some measure determine whether the job will be considered decent paying to some people? Consider the data in Tables 1 and 2, which show respectively that by 1994 only 6.2 percent of the labor force earned the minimum wage and only 5.1 percent were older than 25. The problem is that no attempts have been made to estimate how many adults might benefit were the wage to be set at a liveable level. Those who point to the low percentage of those earning the minimum wage as evidence that the wage as an aid to the poor would be poorly targeted [Burkhauser and Finegan 1989] often fail to note that in 1979 the percentage of the labor force earning the minimum wage was more than double. Although there is a higher percentage of women earning the minimum wage than men, relatively speaking, the percentage of women earning the minimum wage in 1979 was considerably higher. The gap between men and women narrows from 12.5 in 1979 to 3.1 in 1994. Although it is true that the highest percentage of minimum wage workers are to be found among the 16-24 age cohort, there is still a considerable number of minimum wage earners outside that cohort. What appears to have gotten little notice is that this decline also appears to coincide with a period when the minimum wage declined in value, which can be seen in Table 3. | |
Table 1. Percentage of Hourly Paid Workers Earning Minimum Wage
Year Both Sexes Men Women
1979 13.3 7.7 20.2
1980 15.1 9.6 21.6
1981 15.1 9.6 21.2
1982 12.8 8.6 17.3
1983 12.2 8.4 16.4
1984 11.0 7.5 14.8
1985 9.9 6.9 13.2
1986 8.8 6.9 11.9
1987 7.9 5.4 10.5
1988 6.5 4.4 8.6
1989 5.1 3.5 6.7
1990 5.1 3.3 7.0
1991 9.3 6.7 11.8
1992 7.6 5.7 9.5
1993 6.6 5.0 8.2
1994 6.2 4.7 7.8
Source: Drawn from Table 9, U.S. Department of Labor, Bureau of
Labor Statistics, unpublished tabulations from the Current
Population Survey (CPS).
Table 2. Percentage of Minimum Wage Earners by Sex, Marital Status
and Age
Both Sexes Men Women
Total, 16 years and older 6.2 4.7 7.8
Never Married 11.3 9.4 13.7
16 to 24 years 15.7 13.2 18.5
25 years and older 5.1 4.3 6.2
25 to 54 years 5.0 4.2 6.2
Married, spouse present 3.3 1.9 4.7
16 to 24 years 8.5 5.2 11.4
25 years and older 2.9 1.7 4.2
25 to 54 years 2.7 1.4 4.1
Other Marital Status 5.4 2.9 6.9
16 to 24 years 13.2 6.1 16.9
25 years and older 5.1 2.8 6.5
25 to 54 years 4.6 2.6 6.0
Source: Drawn from Table 7, U.S. Department of Labor, Bureau of
Labor Statistics, unpublished tabulations from the CPS.
| | If there is a relationship, it would seem to have some critical implications. On the one hand, it might be inferred that fewer people earning the minimum wage is a measure of progress in that fewer minimum wage earners might presuppose that these workers have been successful in moving out of minimum wage jobs. This is clearly an argument that supporters of the competitive market model are likely to make. On the other hand, it is perhaps disturbing that this trend does coincide with the declining value of the minimum wage. We are perhaps left to wonder whether those who were earning the minimum wage previously did not simply drop out because the value of the wage was inadequate. Many of these people, especially women with children, have been able to receive greater income through public assistance programs. If this is true, it would lend support to the notion that a higher wage, or at least one that more closely approximates 50 percent of annual average hourly earnings, will attract those at the low end of the wage scale into the labor market. It is the latter argument that we are more likely to see from those supporters of the monopsony model. | |
Table 3. Comparison between Minimum and Annual Average
Year Minimum Annual Average Percentage
1938(*) $ .25 NA NA
1939(*) .30 NA NA
1945 .40 NA NA
1947 .40 $1.13 35.4
1950(*) .75 1.33 56.4
1956(*) 1.00 1.80 55.6
1961(*) 1.15 2.14 53.7
1963(*) 1.25 2.28 54.8
1967(*) 1.40 2.68 52.2
1968(*) 1.60 2.85 56.1
1974(*) 2.00 4.24 47.2
1975(*) 2.10 4.53 46.4
1976(*) 2.30 4.86 47.3
1978(*) 2.65 5.69 46.6
1979(*) 2.90 6.16 47.1
1980(*) 3.10 6.66 46.5
1981(*) 3.35 7.25 46.2
1990(*) 3.80 10.01 38.0
1991(*) 4.25 10.32 41.2
1995 4.25 11.46 37.1
* These are the years that increases in the minimum wage took
effect.
Source: "History of the Federal Minimum Wage Rates Under the Fair
Labor Standards Act - 1938 Through 1991," U.S. Department of Labor,
Employment Standards Administration; Bureau of Labor Statistics,
Labstat Series Report, Current Employment Statistics, Series
EEU00500006.
| | The answer, however, is by no means clear from the data. Nothing dramatizes this more than the studies conducted by David Card and Alan Krueger and the controversy they have spawned. In studies of the fast-food industry in both California and New Jersey, Card and Krueger found that when the minimum wage was raised there was little disemployment effect. The California study involved an increase in California's minimum wage from $3.35 - then the prevailing federal minimum - to $4.25 during July 1988. The unemployment rate in California fell from 5.8 to 5.1 percent from 1987-1989. During the same period, the national rate fell from 6.2 percent to 5.3 percent. Although this would suggest that economic growth in California was similar to, or maybe slightly slower than, the rest of the nation, the pattern was quite different for California teen-agers. For teen-agers, the unemployment rate fell 3 percent from 16.9 percent to 13.9 percent. But the average U.S. rate only fell by 1.9 percent from 16.9 percent to 15 percent. The rise in minimum wages raised the wages of low-wage workers with no adverse effects on employment. In the New Jersey study, with Pennsylvania serving as the control group, the focus was again on the fast-food industry. New Jersey raised its minimum wage from $4.25 to $5.05, and the average starting wage at fast-food restaurants in New Jersey increased by 10 percent following the minimum wage increase. But the minimum wage increase had no apparent "spillover" on high-wage restaurants. Within New Jersey, employment expanded at low-wage stores - those paying $4.25 per hour - and contracted at high-wage stores - those paying $5.00 or more per hour. Employment also contracted between February and November 1992 at fast-food stores that were unaffected by the rise in minimum wage - those stores in Pennsylvania and New Jersey paying $5.00 or more per hour. Moreover, there did not appear to be any substitution effect. Although the minimum wage increase did lead to price increases for meals, suggesting that the costs of the increase were simply passed onto the consumer, there was no evidence that prices rose faster among stores in New Jersey that were most affected by the rise in the minimum wage. Moreover, the raise in minimum wage did not negatively affect the number of store openings, and it had no disemployment effect [Card and Krueger 1995a]. These studies, however, have been controversial and as such have raised a whole host of other research questions. The locus of these questions has been over the measurement and the quality of available data. John Kennan, for instance, has suggested that it is simply not known that there would not be adverse consequences were the minimum wage to be increased beyond a certain threshold. Moreover, it is unlikely that we will find out even if we were to employ a more sophisticated methodology on the existing body of data. Rather, what is needed is more sophisticated data [Kennan 1995]. That is, one argument for why these increases may not have had the consequences predicted by the competitive model is because the minimum wage is so far below a market clearing wage [Freeman and Freeman 1991; R. Gordon 1995]. Another issue - also a twist on the notion that the wage has essentially been too low - is whether the minimum wage as such represents an adequate measure of well-being. So even if there is no real disemployment effect, it is largely beside the point if the wage still will not serve to lift people out of poverty [Burkhauser, Couch, and Wittenburg 1996]. An important, but often neglected, subtext to the whole minimum wage debate is that there is not any conclusive data to make any definitive statements about any effects at all, whether they be positive or negative. In effect, the issue becomes the model and its legitimacy, with different groups having to varying degrees a stake in it. This became all too apparent when, after the Card and Krueger studies came out, the fast-food industry financed its own studies, using its own data in an attempt to discredit Card and Krueger. Although it sought through economists David Neumark and William Wascher to refute their findings, Neumark and Wascher only ended up confirming them. In addition, as John Schmitt points out, the economics profession has also begun to show signs of accepting that moderate increases in the minimum wage may have little, if any, effect on employment [Schmitt 1996]. In the end, this ought to confirm the argument that the model that is adopted will affect different people differently. This level of ambiguity in the data might suggest that the Laswell model of politics informs us more about how the minimum wage debate will be resolved than does the traditional normative economics textbook analysis. Evidence suggests that we may know very little about the minimum wage or its actual effects. Charles Brown has suggested that the minimum wage is essentially overrated by both critics and supporters. Since its passage in 1938, it has averaged a bit less than half of hourly earnings. Those who earn the minimum wage account for 6-12 percent of those employed and less than 5 percent of wage and salary income. The reduction in employment in the standard model is not necessarily accomplished by any number of workers being discharged because the turnover rates in minimum wage jobs are on the order of 12-15 percent per month [Brown 1988]. Nevertheless, there are complications to empirical estimates of the effects of the minimum that stem largely from the fact that the Fair Labor Standards Act has exempted some employers. Those exempted were generally smaller ones, with the standard of "smallness" gradually being tightened over time. Indeed, the original legislation exempted more than it included, and this was done largely to obtain the support of Southern politicians who were generally opposed because their wages were considerably lower than in the North [Nordlund 1997]. As of 1988, the uncovered sector consisted mostly of retail trade and service employees. Therefore, the basic message for empirical work is that one must account for the extent of coverage and elasticity of total unskilled employment with respect to the minimum that will be smaller than elasticity of demand. The second complication is that minimum wage workers bear no unique identifying marks besides wage rates, and the effects of the minimum wage on employment are smaller than one would have supposed. Therefore, when viewed in overall context, Brown finds it hard to see any evidence that minimum wage increases have benefits that would overcome an economist's instinctive aversion to interfering with reasonably competitive markets [Brown 1988]. Or stated differently, since the minimum wage only benefits a small proportion of the labor market, its potential benefits would not justify incurring the possible deleterious effects. At the same time, as David Gordon has argued, this is only true if the wage is viewed solely in terms of only those who earn it. Most conventional estimates only look at those earning the minimum wage at a single point in time. A decline in the real value of the minimum wage, however, also affects those earning in between the point where the wage used to be and where it is at the end of the dip. This is in addition to those "minimum wage" workers who earn at or below the wage. When viewed in these terms, a decline in the real minimum wage may be seen as a contributing factor to the wage squeeze and to the growing income inequality [D. Gordon 1996, 214-215]. Turned around, then, an increase in the minimum wage, along with other labor market policies, could have a beneficial effect on the economy insofar as it would begin to reverse the decline of wages and the growth in income inequality. And consequently, there may be greater productivity. On one level, the disagreement among economists certainly reveals the ambiguity in data, but on another level it demonstrates the politics involved in the selection of models. The political question to arise, then, is how the focus has come to be specifically on the effects on the youth labor market? How is it that the traditional competitive model has become the accepted model for approaching the issue of the minimum wage? Card and Krueger have suggested that the answer may have something to do with publication bias. Through a recta-analysis of minimum wage studies, they concluded the existence of a publication bias that often results in the types of studies we are accustomed to seeing. Because journals will not publish results that are not statistically significant and that significance is generally defined as a t ratio in excess of 2, there is a tendency for editors and reviewers to look more favorably on those studies with statistically significant results. In the case of the minimum wage, this problem is compounded by the strong theoretical presumption of the economics profession that increases in the minimum wage will lead to decreases in employment. This in turn may lead to further biases in that (1) reviewers and editors may be predisposed to accepting those papers that can show a "significant negative effect" of the minimum wage; and (2) this criterion of a "significant negative effect" will become a guide to choosing empirical specifications. The choices made in this regard are then intended to ensure that the results are statistically significant [Card and Krueger 1995b]. This in part may account for the principal focus of many studies being on the youth disemployment effect. We do not know that a sizeable segment of the population would not be helped by an increase in the minimum wage - only that the prevailing model suggests that an increase in the minimum wage would result in a youth disemployment effect. There really is not any data to prove that an increased minimum wage would not assist these people. It does not necessarily follow that because many of these individuals do not currently hold minimum wage jobs they would not be attracted to them were the minimum wage to be increased to a level that would entice them to work. On the contrary, the general ambiguity in the data would appear to lead to the conclusion that there is not sufficient data to make such a determination. Rather, determinations are based on generalizations on the basis of what minimum wage positions have attracted. On the contrary, if it can be shown that slight increases in the minimum wage will not affect those who might receive greater benefit from the welfare system, the poverty argument is effectively disqualified. All we are left with, then, is the ill effect on the teen labor market? Since teenagers have little political clout, the effect is to have greater support for keeping the minimum where it is - and even to have subminimums - than to raise them. Overall, the fact that there has not been agreement on (1) the general effects of the wage and (2) who specifically would benefit and bear the costs, the issue has effectively been ripe for political manipulation. Different groups are then free to embrace whichever model serves their political purposes. The focus in the economics literature has done nothing less than obscure the fact that the minimum wage has benefits and costs to different groups of people, and as such these groups have different stakes in the political debate. Failure of Poverty Arguments? Another way to pose the question is to ask just why have other arguments, such as poverty, not been strong enough to induce increases in the minimum wage? Or why is it that the only apparently viable defense against poverty arguments are the supposed ill effects on the teen labor market? Why has the other side of the story not been heard? One argument for why the poverty argument has been ineffectual is because in contemporary political discourse poverty programs are generally under assault [Schram 1995; Katz 1989]. Because of a general perception that the War on Poverty and Great Society programs of the 1960s were a failure, the minimum wage, if couched as a poverty measure, is bound to fail too. This would then suggest that were the issue to be couched as a larger labor issue with the full political support of labor constituents, it is more likely to succeed. Herein lies the political problem: by focusing the issue on the teen-age labor market and denying any positive potential benefits to poor people - as though it is an either/or proposition - the issue of the minimum wage has effectively been removed from the labor market - which may be viewed as a positive area of policy debate - and lodged with those elements that have social stigma attached to them. By transforming the minimum wage into a poverty issue, the political imperative for action has effectively been diminished. The chief labor constituents would be organized labor, but labor unions have generally been in a state of decline since the 1950s and ever more so since the early 1980s. The question, however, is whether in the absence of union power to maintain the minimum wage as specifically a labor issue, it was not inevitable that it would become a poverty issue where it has effectively been marginalized. The period of greatest stagnation for the minimum wage, between 1981 and 1989, as already noted in Tables 2 and 3, also appears to have been a period when organized labor suffered its greatest decline. In particular, 1981 was a watershed for labor, as it was when President Ronald Reagan fired the PATCO air traffic controllers. In so doing, he sent a clear message to labor unions across the country that any form of union militancy would not be tolerated [Dubofsky 1994]. The result was that managers who previously felt constrained by union power were now free to do as they chose. Unions that were once unassailable were forced to retreat, and many ended up offering give backs and engaging in concession bargaining [Piore 1995]. The minimum wage was essentially allowed to fall relative to average wages, from 47 percent to 35 percent. This was the longest and most sustained decline since its introduction in the 1930s [Piore 1995, 10, 14]. But as Roger Keeran and Greg Tarpinian also suggest, more important than Reagan's decertification of PATCO and the firing of its striking members was his anti-union appointments to the NLRB. As a result, those companies operating during a strike in the 1980s found a strong ally in the law [Keeran and Tarpinian 1989-90]. And to suggest that 1981 was a watershed by no means dismisses the trends in many Southern states toward "right-to-work" laws, which effectively barred closed shops. Such laws provide that no one will be required to belong to a union or not to as a condition of employment, and that no collective bargaining agreement will impose such a requirement [Rees 1989, 113]. One school of thought even suggests that management during the 1970s and 1980s embarked on a systematic plan to undercut labor by closing plants and relocating facilities to more favorable business climates. By closing down one plant and punishing its workers, workers in other plants would be forced into more complaisant behavior [Bowles, Gordon, and Weisskopf 1983]. Unions would appear to have something in common with minimum wage legislation not merely because they seek to accomplish the same goals - ultimately the establishment of a minimum level of subsistence - but because congressional support would appear to be stronger in those areas where union density is higher. Politically speaking, it would be easier to support a legal wage floor in those regions where unions have successfully created a prevailing wage rate. The unions, in other words, have already done the heavy lifting, and the statutory wage floor becomes an added layer of protection. But in those regions where no prevailing wage rates exist because there have been no unions to do the heavy lifting, the statutory wage floor is more likely to have an impact on the overall wage structure. To put it differently, those states that have already signaled the desire to maintain low wage rates through laws generally perceived to be hostile to unions are not going to be any more amenable to legislation that does for the entire labor market what unions have only been able to accomplish for a very small segment. The union also has an interest in supporting increases in the minimum wage insofar as an increase may effectively increase the demand for skilled labor. As skilled workers tend to be unionized, unions are only increasing the demand for their own labor by supporting higher minimum wages [Kau and Kau 1973; Kau and Rubin 1981; Hobson and Maurice 1983]. But unions also have an interest in supporting higher minimum wages insofar as they create a stronger cushion for themselves. A viable wage floor, especially during hard economic times, would create an absolute limit to the concessions labor might be forced to give. Or stated differently, a high minimum wage could effectively result in "right-to-work" laws having less of a negative effect on wages in certain regions of the country. And it would also reduce whatever gains are to be achieved through union busting. Congressional Voting Evidence of the declining influence of unions along with different regional interests would appear to be evident in congressional voting patterns. From a theoretical stance, in attempting to understand the voting behavior of members of Congress, we would expect that representatives from those states with higher union density would vote for minimum wage increases while those with lower densities - particularly those from "right-to-work" states - would vote against. Although union density overall is very low, there are clearly relative differences between states. On the whole, union density, as might be expected, is lower in those states that have "right-to-work" laws. Because there is no label that easily captures the exact opposite of "right-to-work," the only basis upon which we can measure the opposite is higher union density. A look at the percentage of unionized labor on a state-by-state basis shows Northern industrialized states to have higher concentrations of unionized workers than Southern states, particularly those with right-to-work laws. Table 4 shows the percentage of workers who were unionized in 1996 on a state-by-state basis. The key question is how members have traditionally voted on the issue. As a general rule, Democrats tend to vote for increases, while Republicans vote against. Because these tendencies conform to preconceived notions, there is nothing interesting in this per se. What is interesting are the exceptions to these general rules. In [TABULAR DATA FOR TABLE 4 OMITTED] the remainder of the paper, I look at the congressional voting patterns of three major episodes in minimum wage legislation: 1955, 1977, and 1989. The increase of 1955 is important because, in addition to being the first increase since the 1940s, it also represented a significant anomaly. A Republican president specifically introduced legislation to raise the minimum wage, and most of the party closed ranks. But it was also a critical period because it was a clear example of union activism on the issue. The 1977 episode is important because it was the last vote on the minimum wage until 1989. It also set in motion a phased-in wage increase with the last increase taking effect in 1981, which itself was the last increase until 1989. Whereas the 1955 round is indicative of union strength, 1977 is somewhat revealing in its relative weakness. Still, there are lessons to be drawn about the importance of labor. And last, 1989 is important because it was the last vote until 1996, although it set into motion a two-staged implementation process. While Congress voted in 1996 for an increase in the minimum wage from $4.35 to $5.15 an hour to occur in two stages, it nonetheless is not very informative, because it was part of a larger tax bill offering rebates and other goodies to both small businesses and larger corporate interests [Rubin 1996]. The Republicans who controlled both chambers of Congress overwhelmingly voted for the package as did practically all Democrats. And in voting for this bill, they were not voting on the merits of increasing the minimum wage, but on the value of the other provisions to their constituents in business. 1955 In January 1955, during his State of the Union address, President Eisenhower urged modification of the FLSA by calling for an increase to 90 cents an hour [Nordlund 1997]. Trade unions viewed this message as a green light to resume their campaign for a higher and more broadly based minimum wage. Overall, the political environment appeared to be somewhat conducive. For one thing, there had not been a revision since 1949, and the 75 cents an hour minimum wage was no longer viewed as adequate. Moreover, the 1954 elections brought the Democrats back to power and in control of both chambers of Congress. And with them came a slightly larger contingent of candidates with labor endorsements. Also, both the AFL and CIO in their separate conventions had passed resolutions urging an increase in the minimum from $.75 to $1.25 and an extension of the coverage. Four unions in particular had a stake in the increase: The International Ladies' Garment Workers Union; the Amalgamated Clothing Workers of America; the Textile Workers Union of America; and the Cap and Millinery Workers. The industries covered by the four unions were producers of light products that were typically transported for sale in nationally competitive markets. As they saw it, those low-wage producers operating at the federal minimum constituted a threat to the organized sector, with the capacity to produce unemployment, wage cuts, or wage freezes in the unionized sector. A higher minimum wage would close, or at least narrow, the competitive gap, thereby serving to preserve employment in unionized plants. Thus, the four unions came together to create an ad hoe committee that was to be formalized as the Joint Minimum Wage Committee with headquarters in Washington. Its principal responsibility was to spearhead the legislative effort to raise the wage. The committee was to be headed by Arthur Goldberg, a prominent labor attorney who would go on to be the U.S. Secretary of Labor in the Kennedy administration before being appointed to the Supreme Court [Tyler 1959]. The committee adopted a strategy consisting of four basic steps: (1) The committee would urge as many members of Congress as it could to submit theft own minimum wage bills. It sought to do this by visiting individual members of Congress; (2) the committee planned a visit with President Eisenhower by the presidents of the international unions. The goal here was to raise the level of publicity to that of a foreign summit; (3) the committee planned interviews between top union leaders and the House and Senate leadership. These conferences were intended to make it clear that the unions meant business and that they were not simply carrying on routine agitation for another measure; and (4) the regular legislative offices of both the AFL and CIO gave the same message to Congressmen in general. By mid-March, the Committee had settled on a focus, which was to work up public interest in a minimum of $1.25 as that which was ultimately desirable and justifiable, but settle on something between $.90 and $1.25. It also planned to build up testimony for extended coverage with the understanding that action on coverage might have to be postponed. The difficulty, however, was going to come from Graham A. Barden (D-N.C.), who was chair of the House Committee on Education and Labor. For a while, it appeared as though it would be a struggle between organized labor and Barden. Barden ruled the committee with a firm hand and he had the votes to back himself up. Consequently, the committee sought to circumvent the House Labor Committee by starting action in the Senate, where it had an ally in Senator Paul Douglas of Illinois. The Committee also sought to drum up grassroots support for an increase. The principal effort was to get "communities" to communicate with Congressmen, rather than trade unionists alone. The assumption was that a higher minimum wage would be of interest to the "community" and that it was the union's job to motivate the community to voice that interest. To do this, the Committee prepared regional staff to go out and talk with members of the community. It prepared handbooks explaining why the minimum wage was first implemented and why it needed to be increased [Tyler 1959]. Although the end result was a compromise of a $1.00 minimum wage, it is important to note that at no point were any arguments about relieving poverty advanced. The minimum wage simply was not viewed in those terms. Rather, it was viewed more in terms of labor-management relations. It in part came about because the president set the tone for a non-partisan effort by introducing it [Nordlund 1997]. But it also came about in larger measure because of the strong efforts of organized labor. 1977 During the 1977 round, pro-minimum wage forces attempted to end the historical pattern of minimum wage setting by first increasing the wage floor to a higher relative rate than in most previous rounds, and second by indexing the wage floor to inflation so that future adjustments would be automatic. Organized labor, as represented by the AFL-CIO, proposed an immediate 30 percent increase from the existing rate of $2.25 to $3.00. They also called for an automatic mechanism to be written into law that would keep the minimum wage at 60 percent of the average hourly manufacturing sector wage. As labor saw it, these demands were in essence the "bread and butter issues of wages and jobs" [Levitan and Belous 1979, 130]. Though there was some support among Democratic members of Congress, the Carter administration was not willing to support a wage as high as that proposed by the AFL-CIO. Moreover, the Carter administration did not feel as beholden to labor as had past administrations because the labor vote during the 1976 presidential primaries had actually gone to Carter's opponents, many of whom had stronger ties to labor. Feeling free from this political constraint, the Carter administration felt that it could back some sort of compromise that might provide some assistance to the working poor without creating too much inflationary pressure. The Carter administration's more modest proposal had called for an immediate increase to $2.50 an hour with future minimum levels to be adjusted annually so that they would always remain equal to 50 percent of average manufacturing wages [Eccles 1977, 640]. As it turned out, a majority of the House Education and Labor Committee favored the addition of indexing as an integral part of a wage floor on the premise that the working poor should not have to await the findings of a commission as their already meager incomes were being eroded. The committee also reasoned that employers too would benefit from stable and regular pattern of change, as this would allow both workers and business executives to anticipate and plan for the increases. While opponents of indexation argued that it was inflationary in addition to an impediment to congressional oversight, the majority of the committee viewed the periodic review process to be unproductive and a waste of Congress's time and effort. Moreover, it was simply unfair for those working poor dependent on minimum wages to see their wages held captive to the whims of the political process, which inevitably had to satisfy the diversity of interest groups [Levitan and Belous 1979, 122-132]. In the end, a compromise was reached whereby the minimum wage would be increased in stages over a three-year period. Although the end of this staged process would see a minimum wage in excess of $3.00, it was not the immediate increase requested by labor. And ultimately, the idea of indexation fell by the wayside. The compromise reached was to raise the minimum wage through four phase-ins in lieu of indexation. When the issue of a minimum wage increase would come up again in 1987, Lane Kirkland, then president of the AFL-CIO, noted in congressional testimony that the AFL-CIO had indeed been disappointed when in 1977 Congress had considered but failed to index the minimum wage. Had that indexation occurred, the minimum wage would have reached $4.45 by 1987 [Kirkland 1987, 297]. Still, we are left to wonder whether the AFL-CIO plan might not have been fully enacted had labor had a better relationship with the administration. At the same time, however, it becomes clear that the process of raising the minimum wage, regardless of the final outcome, involves - and most likely requires - the active participation of labor as a major player. 1989 By 1989, the minimum wage had dropped to less than 40 percent of average annual hourly earnings. But this episode actually began in 1987 when Senator Edward Kennedy of Massachusetts and Representative Augustus Hawkins of California introduced legislation to increase the minimum wage to $4.65 an hour by 1990. President Reagan had indicated that he might soften his opposition to the wage hike if a provision for a youth subminimum wage was also included [Card and Krueger 1995, 328]. Although hearings were held, nothing really came of them. By the time the new Bush administration took office in 1989, it was willing to lend its support to an increase because growth in the economy would allow for it, but it wanted a short-term subminimum, which would be referred to as a "training wage." Moreover, they made no bones about the fact that the real issues, from its point of view, were still education and training. That is, if people wanted to earn more, it was incumbent upon them to acquire the training and skills necessary to command higher wages. Still, the administration believed that there would be a disemployment effect and ultimately threw its support behind a two-tier wage program, with a subminimum training wage. The Democratic proposal would have raised the minimum wage from $3.35 to $4.55 in three stages and included a two-month training wage only for those who never held a job before. Although this bill, H.R. 2, was passed by both houses of Congress, it was ultimately vetoed by President Bush. In the end, Democrats wrote compromise legislation raising the minimum wage from $3.35 to $4.25 in two stages that also included a training wage equal to 85 percent of the minimum for those aged 16-19, which was overwhelmingly voted for by both Democrats and Republicans, including those who initially voted against the original legislation. Nevertheless, the vote on H.R. 2 is important because it was the first one since 1977, and it is this vote that I look at in the analysis. The Vote Beginning in 1955, we can see some very interesting things. Although most members of Congress overwhelmingly voted in favor of the wage increase, including most Republican members, a sizeable number of Democratic members of the House also voted against the minimum wage and again they were primarily from the "right-to-work" states. In fact, there were more Democratic members of Congress voting against the increase than Republican members voting for it. In Tables 5 and 6, we can see from which states both Democratic votes against and Republican votes for come from and how many out of their respective parties. The action in the House is more interesting and, as can be seen in Table 7, it appears to have greater significance, particularly among Democrats from the "right-to-work" states. Relative to the entire House for both those Democrats that voted against and those Republicans that voted for, there is a considerable percentage difference among those specific states where the votes came from. Among the Democrats that voted against, the percentage difference is even more pronounced among the "right-to-work" states. Although proportionately fewer Republicans vote for increases than do Democrats vote against, there is still a considerable percentage difference among those who do within the specific states they are located relative to their presence in the entire House. There are exceptions - and those exceptions are usually among one or two lone politicians out of a large congressional delegation - but generally speaking most Democratic votes against in all three episodes tend to come from "right-to-work" and/or Southern states whereas most Republican votes for, with some exceptions, come from those states with union densities above 10 percent. The interesting thing on the Senate side is the tendency to vote as solid blocs. For instance, those states in which Democrats voted against were generally voting as their Republican colleagues had. Similarly, the same appears to be true among those Republicans who voted for the increase. Most of the Republican senators who voted for an increase joined their Democratic colleagues in their respective states in voting for the legislation. Again, for a couple of lone exceptions, the fact that Senators appeared to vote as blocs - perhaps regardless of party identification - would seem to suggest that constituent interest, even in the form of state interest, was more important. Implications That Democratic members of Congress are willing to vote against the position of their party at a minimum demonstrates the inability of modern-day political parties to enforce discipline on their members. This, of course, is nothing new. What is more important, however, is the apparent view different regions of the country take [TABULAR DATA FOR TABLE 5 OMITTED] [TABULAR DATA FOR TABLE 6 OMITTED] to the issue. On one level, the fact that members from those regions with high union densities - particularly Republican members - are willing to vote for the increase might imply that a key interest group in affecting how members vote is organized labor. On another level, from the fact that most Democratic votes against the minimum wage came from those regions where there are "right-to-work" laws, it might be concluded that the minimum wage, at least in certain areas, has a detrimental effect on the wage structure, and this runs contrary to many of the politically hegemonic interests in the area. That is, if certain regions passed "right-to-work" laws with the intention of becoming more competitive and hoping to attract greater capital investment, the minimum wage is viewed as an issue affecting their ability to compete. It might also be inferred, then, that those representatives in the industrial sections who support minimum wage increases view it as a measure that, in part, will stem the flow of capital investment - ultimately jobs - from their regions to the lower wage areas, most notably "right-to-work" states. If representatives vote in the interests of their constituents, they are clearly doing so in these regions of the country. Therefore, it would appear that those who wield greater power are better able to influence how members of Congress vote. But it also is not difficult to see how the minimum wage has become an issue wrapped up in the more traditional competition between states for capital investment [Eisinger 1988]. It is actually understandable why Democrats from "right-to-work" states might vote against the minimum wage. What is more peculiar is that there are a handful of Republicans willing to vote for it. And while union density in those states may be higher relative to "right-to-work" states, it is still considerably low relative to the overall work force. Why, then, are they willing to vote for the wage? One reason might be the obvious moral concern of fairness - that they believe that raising the wage of those at the bottom end of the scale is the right thing to do. But when we stop to consider that increases often tend to be limited, one then has to wonder why more do not see themselves as able to do the right thing. The fact that increases have been so minimal may lead to yet another plausible explanation. That increases are so much below equilibrium wages means that representatives who support increases can effectively lend their moral support to an issue without having to worry that it will have a serious negative effect on people. Of course, if it is true that there is little negative effect, why is there so much opposition to the concept? One possible explanation is the slippery slope, that once government intervenes in one area there is no telling how far it may go. But perhaps the most important is that there are powerful economic interests mobilized against increases in the wage, and Congressmen do not want to offend those interests. That there may be some economic studies to indicate that whatever negative effect may be marginal is irrelevant in a political arena in which Congressmen must not only satisfy their constituents in order to be reelected, but in fact live to be reelected [Mayhew 1974]. | |
Table 7. Percentage Differences in the House of Representatives
Democratic Votes Against
Entire House States(*) Right-to-Work States
1955 13.1 39.7 39.7
1977 22.3 42.0 61.2
1989 10.7 32.0 44.4
Republican Votes For
1977 12.1 22.4 4.1
1989 15.0 29.3 1.3
* These are percentages among the states listed in Table 5.
| | Nevertheless, trends in voting only reinforce the notion that the minimum wage is a political issue. From a policy standpoint, it would imply that because conclusive data on the effects of the minimum wage do not exist, whether the wage is raised or remains where it is will likely be a question of which interest is best able to influence policymakers. In the realm of politics, then, reasons for raising the minimum wage stand on an equal footing with those for not raising the minimum wage. As organized labor appears to be a critical constituency, the terms of the political debate need to be refocused. The debate needs to be refocused, then, back from poverty to a traditional labor market issue - perhaps even a labor-management issue. I am not suggesting that the answer necessarily lies in strengthening labor unions, though that in and of itself would not necessarily be a bad thing. But the answer does lie in returning the minimum wage to the broader spectrum of issues that usually fall under the rubric of labor market concerns. This would further serve to demonstrate why the minimum wage affects us all and not just a particular segment of the population - that lacks serious political clout. Moreover, it would force managers to explain just why a high-wage strategy - though clearly in the interest of most - would not be in their interests. This, of course, would require them to couch their opposition to a high-wage strategy in the language of the larger public interest so as not to appear selfish. Alas, were managers forced to make this kind of argument for a low-wage economy, they might also find themselves confronted with considerable political opposition. Notes 1. One reviewer suggested that in this discussion of why economists cannot agree that it would be useful to understand why unanimity would take politics out of the decision to raise the minimum wage. 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