Costs, Payoffs of Clinton Wage Plan Are Debated

To Lisa Reese, who is trying to support her 2-year-old son by stocking shelves at the G.C. Murphy Co. five-and-dime store here, President Clinton’s proposal to lift the minimum wage figures to make it easier for her to meet a $150 monthly food bill and a $285 rent payment.

But Charles Bender, the proprietor of a nearby card and gift shop, worries that he might have to lay off some of the store clerks on his payroll.

Whether to serve Reese or Bender will determine the fate of Clinton’s plan to raise the minimum wage from the current $4.25 an hour to something like $4.75 or $5 by 1996.

For many years, it has been common-sense economic wisdom that when low-skilled workers such as Reese must be paid more, bosses such as Bender employ fewer of them.

But some economists are questioning that logic. A growing minority is advancing a hotly debated proposition: that a higher minimum wage actually may spell more jobs, not fewer, for low-wage workers. Better-paid workers are more satisfied with their jobs and are more productive, thus reducing turnover and making it easier for business to expand, according to this theory.

This southern Pennsylvania town--best known for its Civil War battlefield--has its share of low-wage workers and it was to these workers that Clinton was referring in his speech.

“You can’t make a living on $4.25 an hour,” the President said in his State of the Union Address on Tuesday, challenging Congress to “find a way to make the minimum wage a living wage.”

“It’s not easy to pay your bills on $4.25 an hour,” said Reese, who will be 21 years old next week and is sharing expenses with her boyfriend, who earns “six-something” an hour as a janitor.

Reese was recently given a 55-cent raise, to $4.70, after working full time at the store for two years and part time for two years before that while she attended high school. “Five dollars? It’s a good bit better,” she said.

But for Bender, being forced to start workers at $5 an hour, rather than $4.25, would pose a problem.

“If you’re looking to start somebody, you’d think twice about it. It would affect hiring,” he said.

For an overwhelmingly popular notion--72% surveyed last weekend for a Times Poll said they favored it--an increase in the minimum wage brings with it considerable confusion and certain opposition.

At its heart, the debate over the minimum wage is about the value of labor. An unskilled worker may perform work that is worth $4.25 an hour. At $5 an hour, however, an employer may find the employee a profit-losing proposition, not worth keeping on the payroll because the value of the work isn’t worth the extra 75 cents.

So any proposal to raise the wages paid at the lowest levels brings into focus these questions:

* Will it lead employers to hire fewer workers, or even fire some workers rather than raise their pay?

* Will employers seek ways to increase automation at the cost of jobs?

* Will employers demand greater productivity from fewer workers to make up for the higher wages?

* Will only those workers with greater skills be hired because only their labor, not that of the least-skilled, is worth the higher wages?

* Will higher wages at the bottom of the ladder lead eventually to greater wages throughout the economy, feeding inexorable inflation?

* Will companies be forced to raise prices?

* If prices go up, will the end result be a better life for the poorest-paid workers if they must devote a greater percentage of their limited earnings to pay for life’s essentials?

These are the sort of questions economists--and workers and their employers--will be struggling to answer as Congress takes up Clinton’s request.

Historically, the minimum wage has not been the economic drag that conservatives often paint it to be.

During the roughly 60 years leading up to the establishment of the minimum wage in 1938, unemployment in the United States was “just as high or higher than it has been from 1938 to 1994,” said Alexander Keyssar, a professor of American history at Duke University who has written extensively on the history of unemployment.

A study that examined the impact of an increase in the minimum wage in New Jersey in 1992 has caused a great stir in recent months among labor economists. The Princeton University study, conducted by David Card and Alan Krueger, who is now the Labor Department’s chief economist, compared hiring practices in 437 fast-food restaurants in southern New Jersey and neighboring eastern Pennsylvania. New Jersey was increasing its statewide minimum wage at the time; Pennsylvania was not.

Automation did not follow, nor did layoffs. Rather, the number of jobs in New Jersey restaurants grew as the wage rose; The number of jobs in the Pennsylvania restaurants did not change.

Why did employment increase?

Card isn’t sure. But, he said, under one theory “if you pay slightly higher wages, your workers are less likely to leave. The guys you have will work harder. They’re doing a better job and you make more money.”

Whatever the explanation, Finis Welch, an economist at Texas A&M; University, is highly skeptical.

His own study found decreases throughout wide sectors of the low-wage working population after the most recent increases in the federal minimum wage went into effect in 1991.

Theories aside, employers will make their own determination of what an increase in the minimum wage would mean.

Working very quickly through the arithmetic of a 75-cent increase, Mike Erikson, the manager of the G.C. Murphy store where Reese works, found that it would add $300 to his weekly payroll.

“It would be good for the employees,” he said. But in a retail business, he said, every penny counts. There isn’t room to raise his prices.

So, would he reduce his payroll, either by cutting workers or trimming their hours?

“We’d probably have to,” he said reluctantly.

* SOUTHLAND REACTION: How local employers and workers view proposal. D2