Reduction in Jobs Cited : Base-Pay Hike Will Hurt Poor, More Experts Saying

Roland Wesley sees the American job market from the lowest possible vantage point--the Chicago ghetto, where poverty is rampant and unemployment hovers near 30%.

Wesley runs a job placement firm that tries to train and motivate the chronically unemployed to get and hold jobs that typically pay at or near the minimum wage. That, he says, is all his clients--small ghetto businesses--can afford. If they were forced to pay more, they simply would not hire.

“We take young men on welfare, train them to entry-level positions and try to get them started,” Wesley said. “We will have difficulty if the minimum wage is raised. If the base pay is higher, it would hurt the very people we try to help.”

A growing number of economists is beginning to see the minimum wage from Wesley’s perspective. As Gary Burtless, a labor market specialist at the liberal-leaning Brookings Institution, put it: “When you raise the wage, it makes employment of unskilled workers much more difficult.”

Yet, an increase in the minimum wage, which despite inflation has remained at $3.35 an hour since 1981, now has its best chance in six years of clearing Congress. Democrats have taken control of the Senate as well as the House, and the AFL-CIO is pushing hard for legislation designed to guarantee more than a subpoverty wage for those on the bottom rungs of the work ladder.

The key committee chairmen--Sen. Edward M. Kennedy (D-Mass.) of the Senate Labor and Human Resources Committee and Rep. Augustus F. Hawkins (D-Los Angeles) of the House Education and Labor Committee--introduced a bill to raise the minimum wage to $4.65 an hour in three annual steps and then keep it at 50% of the nation’s average wage.

At today’s $3.35 an hour, they point out, the minimum wage will not buy much more than it did at its inception in 1938, when it was pegged at 25 cents. By the end of last year, $3.35 an hour was only 38% of the average hourly wage, down from 59% in 1956 and 48% as recently as 1981. At the minimum wage, a year-round worker would earn less than $7,000--well below the poverty threshold for a family of four.

‘Substandard Public Policy’

“A subminimum wage is substandard public policy--for young or old,” Kennedy declared when he introduced his minimum wage bill late last month. “The time has come for Congress to redeem the promise of the minimum wage by restoring its value for American workers.”

Kennedy’s and Hawkins’ committees have yet to begin work on minimum wage legislation, and the outlook is cloudy. Even if both houses of Congress approve a bill, they will have to get it through--or around--President Reagan, an ardent foe of the measure.

Proponents of raising the minimum wage emphasize the destructive effects of working for poverty-level wages. AFL-CIO economist John L. Zalusky said that the goal is to “keep people being paid at the minimum wage from being left behind and to raise them from poverty.”

There are 5.2 million workers at the minimum wage, according to the Congressional Budget Office. And Sar Levitan, director of George Washington University’s Center for Social Policy Studies, points out that raising the minimum wage would also push up the pay of the working poor who make little more than today’s legal minimum.

“It’s not just a matter of lifting people out of poverty,” Levitan said. “It’s that we should not, in an affluent society, accept wages that are below minimum standards.”

Inefficient Technique

Other experts call a higher minimum wage an extremely inefficient technique for reducing poverty.

The Congressional Budget Office pointed out that only 20% of workers earning the minimum wage are officially classified as poor. Many of the workers are teen-agers from middle-class families, the budget office reported, and nearly 70% are members of households with “incomes well above the poverty line.”

Anthony Carnevale, an economist with the Washington-based American Society for Training and Development, which lobbies for training and human resources firms, said that the minimum wage has become a symbolic issue for organized labor.

“You get very marginal returns with a higher minimum wage,” he said. “Perhaps this issue is a litmus test for labor and the liberal community. But it’s frustrating to see so much energy go into this issue. This is the wrong policy lever. It doesn’t connect to anything.”

Likewise, Roger Brinner, a vice president of Data Resources Inc. of Lexington, Mass., called the minimum wage a “rather blunt and awkward tool to redistribute income.”

Brinner warned of the inflationary impact of a higher minimum wage. “All that happens is that you employ fewer at a higher wage scale,” he said, “and everyone’s cost of living goes up. I’m willing to believe that, for those at the new level who keep their jobs, their income is higher. But it costs everybody else higher prices.”

Employers Cut Staffs

The history of previous increases in the minimum wage supports Brinner’s observation that a higher wage means fewer jobs. Although some employers simply pay the higher wages and pass on the cost increases in the form of higher prices, others apparently cut their staffs or at least reduce their expansion plans.

The Minimum Wage Study Commission, appointed by President Jimmy Carter, studied the consequences of increases in the minimum wage in the 1970s and concluded in a 1981 report that every 10% increase in the minimum wage eliminates 80,000 to 200,000 teen-age entry-level jobs. That would mean a loss of 300,000 to 800,000 teen-age jobs alone under the Kennedy-Hawkins bill.

Laverne Michau can understand that. He runs a small machine-tooling plant in the Mojave Desert community of Ridgecrest, Calif., that depends on precision hardware contracts from nearby China Lake Naval Weapons Center. Michau said he regularly hires high school graduates at the minimum wage, trains them on computer-controlled machining equipment and, if they pass muster, promotes them quickly to $6 an hour, with double that or more within reach in four years.

“I’m at the point where, if I have to go out and pay new people a higher wage scale, I’ll go to a totally automated system,” Michau said. “One skilled operator can run three machines, but a programmer could do 10.”

And Dale Nelson believes that an increase in the minimum wage would have an effect even in Des Moines, Iowa, where unemployment is so low that virtually everyone already earns more than $3.35 an hour.

Pressure on All Wages

Nelson is head of a contract janitorial and cleaning services company that trains young people for entry-level positions--all paying more than the minimum wage--and he claims to have created 152 new jobs last year. Raising the minimum wage, he said, would put upward pressure on all wages in Des Moines. If the price of janitorial services rose, he said, his clients would hold costs level with a corresponding reduction in services.

“We would have to lay off as many as 75 to 100 people,” Nelson said. “Right now, we are taking people off welfare and putting them to work. I feel very strongly we are providing jobs to people who otherwise would not be working at all.”

Richard Berman, president of S & A Restaurant Corp., a national chain that hires young people for beginning jobs, said: “It’s the entry-level positions that suffer first when the minimum wage goes up. We’ll keep more of our waiters but take on fewer busboys.

“The saddest part of it is that a lot of the people we won’t hire, or the ones we would let go, are those least able to find another job. They haven’t finished high school. They need training. They can’t travel to where jobs are.”

Labor’s Response

Organized labor dismisses such talk as the sorts of threats to be expected from employers who want to hold wages down. AFL-CIO President Lane Kirkland last year dismissed the link between the minimum wage and unemployment as “an old chestnut.” As adjusted for inflation, the minimum wage has fallen so far since 1981 that the result should be full employment, he said. Instead, the unemployment rate is 6.2%.

AFL-CIO economist Zalusky said that Data Resources found that a $1.50 increase in the minimum wage would shrink the economy only marginally. Fewer jobs would be created, he conceded--but the number would total only 450,000 over an eight-year period.

But Nigel Gault, a Data Resources economist, took issue with the way Zalusky interpreted his firm’s economic forecast. In fact, he said, a new report by Data Resources will show that the new jobs that would not be created because of a $1.50 increase in the minimum wage would be as much as double the 450,000 cited by Zalusky.

Levitan warned against simplistic computations of jobs lost to a higher minimum wage. Although some employers would hire fewer workers, he said, the remaining workers would have to be more productive.

“Higher productivity,” he said, “creates more wealth, which in turn should create more jobs rather than reduce them.”

Minority of One

By his own admission, however, Levitan is virtually a minority of one on the subject among economists not affiliated directly with organized labor. Others say that the problem of low-income workers runs much deeper than the $3.35 minimum wage.

Wesley, who helps place Chicago’s down-and-out in low-paying jobs, says the problem that plagues them is not the wage scale but inadequate education and training. It is a view that has widespread support among economists.

“The problem is their education, their training, their language skills or, if they’re immigrants, their legal status,” economist Carnevale said. “ . . . For these people, any chance to get a job will simply disappear if wages are pushed up too fast.”