Symbolism Shrouds Base Pay Fight : Reality Is Minimum Wage Hike Would Have Little Impact

President Bush and Congress are locked in a heated battle over how much to raise the federal minimum wage, but Alice Sparks, a Ventura, Calif., cafeteria worker, isn’t even paying attention.

Sparks, 62, notes that “almost everyone” at the county-operated snack bar where she works is already earning at least $4.50 an hour anyway--a full $1.15 an hour more than the present federal minimum wage and 25 cents over what Bush is proposing for 1991. Still, she says, “they ought to raise the minimum some. A person just can’t live on that these days.”

Sparks’ assessment underscores the stark difference between the rhetoric and the reality of the current debate. The effort to drive up the minimum wage has taken on a symbolic significance that has overtaken the likely real-world impact in Ventura and across the nation.

Backed by Labor

So important is the symbolism that congressional Democrats, backed by organized labor, are trying hard to push the minimum up from $3.35 an hour, where it has held since 1981, to $4.65 in three annual stages by 1991.

“Allowing such a drastic erosion has broken the 50-year-old promise we have made to the American worker that the minimum wage should be a living wage,” asserts Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate Labor and Human Resources Committee.

Republicans, citing the concerns of small businesses, argue that any increase should be modest, lest it raise business costs so sharply that it would discourage firms from hiring more low-level workers. They also warn that businesses would inevitably pass a higher minimum wage on to consumers in the form of higher prices.

But President Bush, recognizing the pressure for raising the minimum wage, supports an increase in three annual steps to $4.25 an hour. He would combine it with a new “training minimum” that would allow employers to continue to pay workers the current $3.35-an-hour minimum wage for their first six months on the job.

“It’s the only effective way to offset the job loss,” says Labor Secretary Elizabeth Hanford Dole.

Little Difference

The evidence shows, to the contrary, that neither proposal would make any appreciable difference, either for the work force as a whole or for the businesses that have to pay the extra wages.

Twelve states, including California, have already set their minimum wage higher than $3.35 an hour. California’s minimum, now $4.25, the level proposed by Bush, is tied with Connecticut’s for the highest of the 50 states. And more state governments are poised to follow suit, no matter what Congress and the Administration do about the federal minimum.

And even in states where the minimum is still the federal $3.35, the 5.1% national unemployment rate has created so tight a labor market that most workers command more. Such major low-wage employers as fast-food chains and hotels are having to pay higher-than-minimum wages to attract workers.

As a result, “the current minimum wage has become largely irrelevant,” says Barry P. Bosworth, a Brookings Institution economist who headed the Jimmy Carter Administration’s wage-price restraint effort in the late 1970s.

That rings true to Bill Kelso, a plumbing contractor’s assistant in Ventura, where the jobless rate of 5.3% is actually slightly higher than the national average. The going rate for add-on laborers there is already $6 an hour, he says, “and that’s if the person is an idiot. When I need laborers, I pay them $7.”

Mostly Teen-Agers, Elderly

A high proportion of those who do earn the minimum are teen-agers or elderly people seeking part-time work, whose jobs do not determine their families’ overall standard of living. Surveys show that most workers who take jobs at the minimum wage remain at that salary for an average of only six months.

Studies have found that raising the minimum wage “does relatively little to ameliorate poverty,” says Curtis Gilroy, an economist who helped compile a 1981 study of the issue. A recent report by the Census Bureau shows the Social Security benefits and other government programs are much more effective than the minimum wage at providing Americans with more than poverty incomes.

Even Bush’s contention that employers may be discouraged from hiring low-skilled workers if the minimum is increased very much also is widely disputed. Although studies have shown that some jobs are lost when the minimum wage is increased, the impact is apparently small.

Impact on Jobs

Recent estimates suggest that each 10% increase in the minimum wage reduces the number of jobs in the national economy by between 40,000 and 60,000 jobs--which is only about one-eighth of the number of new jobs generated each month at the economy’s current growth rate. Bush’s proposal calls for a 10% rise in the minimum wage in each of the next three years.

Indeed, employers in some labor-scarce areas have actually found advantages in a higher minimum wage. Jeff Mayner, owner of a Ventura fast-food restaurant, contends that it has been “easier to get employees” since California raised its state minimum wage to $4.25 an hour, although Mayner has had to raise prices--and cut back on new hiring--to help pay for it.

“What it has done is inflict more work on management,” he says, juggling trays of hamburgers in his kitchen.

Regardless of whether a higher minimum wage would have a substantial impact either on workers or on their employers, economists such as Sar A. Levitan, director of the Center for Social Policy at George Washington University, contend that fairness alone dictates an increase.

Comparison to Factory Workers

Historically, Levitan points out, the federal minimum has stood at between 50% and 60% of the average hourly rates for factory workers in the United States. But now it has dropped to only about 35%.

Even if only a few Americans earn the minimum, Levitan says, they would welcome any increase, even the relatively modest one that Bush is proposing.

Brookings’ Bosworth agrees that a higher minimum wage would carry a welcome social message, even though it would have little economic impact.

“I think the issue has become painful to both sides in the debate,” he adds. “Organized labor is tired of having to use so much of its leverage to push the minimum wage up, when it really doesn’t believe in it, and business is tired of fighting it off.”

And there may be at least some modest economic benefits from a higher minimum wage. A new study by Ronald B. Mincy of the Urban Institute suggests that increasing the federal minimum may be more effective in relieving poverty than it was in earlier days.

The reasons: there are proportionally more workers earning low wages now than in the mid-1970s, while at the same time American families are smaller than they were 15 years ago. So a boost in the minimum wage, Mincy says, “would go farther today” in increasing family purchasing power.

Compromise Expected

Although Bush’s proposal for a new “training minimum” is still largely untested, the odds now seem to be that Congress will enact some form of training minimum coupled with an increase in the regular minimum wage to somewhere between the Bush proposal of $4.25 an hour and Kennedy’s demand for $4.65 an hour.

So far, committees in both the Senate and the House have approved a $4.65 minimum wage, without Bush’s training minimum. But negotiations between the White House and congressional Democrats are continuing, and what emerges from Congress could more closely resemble the Administration’s proposal.