Plan to Boost Minimum Wage Taking Some Hits

Labor Secretary Robert B. Reich will try to follow through this week on President Clinton’s promise to raise the minimum wage, but representatives of workers and employers can’t decide if the plan he’s offering is half-empty or half-full.

Reich, one of the President’s key economic advisers, said he will deliver to the White House a proposal designed to boost the minimum wage to about $4.75 per hour from the current $4.25. It would be the first increase since 1991, when the rate went up 45 cents.

But only about half of the 50-cent increase would show up in paychecks, Reich indicated in a recent speech. The rest would consist of new or expanded medical benefits called for under Clinton’s health care reform plan.

While not committing himself to specific recommendations before submitting the proposal to Clinton, Reich said the actual amount of any direct hike in the minimum wage would depend on how much employers would be required to pay for medical benefits.

He estimates that Clinton’s health care bill, to be presented formally to Congress Wednesday, would require small businesses to provide workers with added benefits worth an average of 15 cents to 35 cents per hour.

When combined with a 25-cent increase in the minimum wage to $4.50, the health benefits “would be equivalent, from the point of view of an employer, to increasing the minimum wage to approximately $4.75 an hour,” Reich said.

Citing recent studies conducted by Harvard and Princeton universities, Reich maintains that the average cost of employing low-wage workers can be increased by as much as 50 cents an hour without significant job losses.

“The combined effects of a modest minimum wage increase, universal health coverage with discounts and the expansion of the earned income tax credit would be to greatly increase the real earnings of low-wage workers without harming their employment prospects,” he said.

Even at $4.75, Reich is aiming lower than he had hoped. When Clinton took office in January, Administration officials talked of raising the minimum wage to $5.25. But Labor Department officials have scaled that back.

Union officials see Reich’s approach as a positive interim step. But they say it is not enough to help low-wage earners catch up with rising costs.

“Having an increase through the health care reform plan is better than no increase at all, but something needs to be done to more permanently restore their buying power,” said AFL-CIO spokeswoman Candice Johnson.

Some business leaders say Reich’s strategy may be designed to appease small proprietors who are already up in arms about Clinton’s health care plan, which requires all employers to pay 80% of health benefit costs for workers. By reducing the minimum wage increase, the Administration is clearly acknowledging the added cost of health coverage it is proposing.

But that doesn’t necessarily make the plan more popular. A small business trade group says Reich is trying to “camouflage” a 50-cent hike.

“When you split it up like this, you’re trying to make it more palatable than it is,” said Terry Hill of the National Federation of Independent Businesses.

“It doesn’t sound as bad. But when the cumulative figure hits you between the eyes, you’ll know it’s real policy.”