Gaining Security in the Workforce

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Senator Kennedy will hold hearings on “Economic Opportunity and Security for Working Families” next Tuesday in his capacity as chairman of the Senate Committee on Health, Education, Labor, and Pensions. Following the House’s passage of a minimum-wage increase bill earlier this week, these hearings will focus on jobs — their availability, pay and benefits, and security.

When the minimum wage bill was considered on Wednesday, Rep. Rob Andrews of New Jersey said, “When the tax bill was on the floor, the wealthiest people in the country, people making more than $300,000 a year wanted massive tax breaks. It was their day, and they got it.

I am sorry to disappoint the opponents of the minimum wage, but this is not your day. This is the day for the people who empty the bed pans, change the bed linens, sweep the floors, and do the hardest work of America.

After a 10-year wait, even though they don’t have the lobbyists here, even though they don’t have the political action committees here, this is their day.”

Even though only 1.6% of hourly paid health care support workers were paid minimum wage in 2005 — the majority receives more — Mr. Andrews’ concerns about low-income workers are no doubt genuine. But legislating economic wellbeing won’t raise incomes and actually could cause them to decline.

By all measures, America’s labor market is in superb shape. The economy has created 1.8 million jobs over the past year, of which 1.6 million are in the private sector. The unemployment rate is only 4.5% — lower than all industrial countries except Japan. Real after-tax incomes are over 3% higher than a year ago. Employment in industries that pay above-average wages, such as professional and business services, has expanded rapidly.

What concerns Senator Kennedy and Rep. Andrews is the perception of unfairness. Lower-skilled workers earn less and are more likely to be unemployed than higher skilled ones. Hence, the well-meaning rush of the new congressional leadership to pass laws to raise compensation.

Raising the minimum wage, however, could be counterproductive. An increase from $5.15 to $7.25 would affect about 10 million jobs and cost employers about $14 billion. Employers won’t simply absorb the cost. If workers can’t produce goods and services worth $7.25 an hour they’re just not going to be hired.

So for many workers the choice is not between a job at $5.15 an hour and the same job at $7.25 an hour. It is between a job at $5.15 an hour and no job at all, because an increase in the minimum wage may cause that job to disappear, as has happened in Europe. Legislating workers out of a job is no path to economic security.

This is a shame because low wage jobs today are a stepping-stone to higher wage jobs tomorrow. About 1.8 million Americans earn the minimum wage, the majority of whom are under 25 and work part time in the hotel and restaurant industry. After a year on the job, most are promoted.

When the minimum wage is raised, employers would not immediately fire all of their minimum-wage employees. Rather, the low-skilled workers would not necessarily be replaced when they leave. Supermarkets would open even more self-checkout lines, hotels would hire fewer luggage carriers, and teens would find fewer summer jobs.

Those leading the charge for a higher federal minimum wage come from states that already have higher minimum wage laws and whose residents wouldn’t lose jobs due to the new law. California, home to the speaker of the House, Nancy Pelosi, and Rep. George Miller, and Massachusetts, home to Senator Kennedy, have state minimum wages of $7.50. And Rep. Andrews’ state has a minimum of $7.15.

It’s residents of states with no extra minimum wage that would be most adversely affected. These include Oklahoma, Alabama, Montana, and Nebraska, where the incomes and costs of living are lower and where employers are less able to pass on higher wages to customers.

Other required benefits also won’t buy economic security. If Senator Kennedy wanted workers to have paid sick leave, Congress could require that firms provide six days paid sick leave to each employee. But the approximately 144 million workers who have jobs paying above minimum wage would see fewer raises and new job opportunities. The mix of cash and fringe benefits might change, but workers’ total compensation would likely remain the same.

How can we help people gain security in the workforce? The answer is not to price them out of a job, but to improve their opportunities and upward mobility through better education.

Unemployment rates, at 6.6% for adult high school dropouts, fall to a below-average rate of 4% for those with a high school diploma. For those with a bachelor’s degree, the rate is only 2%. Perhaps Senator Kennedy could schedule another hearing.

Ms. Furchtgott-Roth is a senior fellow at the Hudson Institute and director of Hudson’s Center for Employment Policy. Between 2003 and 2005, she was chief economist at the U.S. Department of Labor.


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