A Living Wage? : WELFARE : Minimum Wage Not Always So Minimum

More than anything, the “chump change” calculation bedevils welfare policy. Namely: Being on public assistance can be a better deal than work. If you give up welfare to labor 40 hours at the minimum wage, you may end up worse off than if you’d stayed home and drawn the dole-- making you a chump for working.

The “chump change” dilemma is often spoken of as somehow immutable to the welfare structure. But it is not. Rather, it is a phenomenon of the eroding value of the minimum wage. This aspect of wage policy has been entirely overlooked in reaction to President Bill Clinton’s proposal to raise the federal minimum to $5.15 an hour. Raising the minimum wage is not just a means to promote fair pay. It is a means to get people working by abolishing chump change.

In the 1960s, the minimum wage was worth about $6.40 an hour in 1994 dollars, versus the current minimum wage of $4.25 an hour. That meant that in the 1960s, if you left the dole to work 40 hours at minimum wage, you came out ahead--even after paying taxes. Beginning in the late 1960s, Congress let the minimum wage decline relative to inflation. During the same period, public-assistance benefits began to rise.

In the 1970s, the lines crossed: Starting work became less rewarding than drawing the government check. In the past two decades, as increases in the federal minimum wage consistently lagged behind inflation, for those eligible for welfare, in most states, entry-level labor has grown less appealing, economically, than idleness. This can be the case even when the newly expanded Earned Income Tax Credit--special payments to assist the working poor--is taken into account.

Work, being hard, is supposed to offer rewards, including money. All but chronic welfare recipients generally wish to work, if rewarded. “Studies are very clear,” says Rebecca M. Blank, an economist at Northwestern University, “that anything that makes work more attractive improves the likelihood people will get off AFDC (Aid to Families with Dependent Children).” But in the current minimum-wage regime, some work penalizes welfare recipients rather than reward them.

Discussion of the link between entry-level pay and welfare dependency has been absent from reaction to Clinton’s proposal to raise the minimum wage to ensure, in Clinton’s words, that “work must pay.” Many politicians and pundits who pronounce themselves (with considerable justification) horrified by the welfare culture nonetheless oppose federal wage policy--not seeming to realize how the two feed off each other.

Some opponents claim a higher minimum wage will depress the economy, though even at $5.15, the minimum wage would be lower in real terms than during the 1960s--a period enshrined in political nostalgia as a time of economic boom. Some--among them new House Majority Leader Richard Armey of Texas--say raising the minimum wage will reduce jobs, though a recent study by David Card and Alan Krueger, two Princeton University economists, undercuts this idea.

Card and Krueger found that total jobs often rise as the minimum wage rises: For most companies, economic conditions--including the buying power of consumers--seem more important than additions to the hourly wage base. And though some opponents say increases in the federal wage mainly helps teen-agers doing after-school jobs, statistics show about 60% of those earning minimum wage are parents supporting families.

Conservative writing on the cycle of welfare often hits on the point that federal taxes on entry-level wages create a disincentive to work but ignores the disincentives created by the falling value of the minimum wage. For example Charles Murray’s “Losing Ground,” the Torah of the conservative anti-welfare movement, details the anti-work impact of taxes on entry-level labor, since the right hates taxes, but skips over the question of the falling minimum wage, since the right want wages low (but salaries high, if you get that distinction).

Raising the minimum wage would, of course, be no panacea for welfare. Sheldon Danziger, a professor of social work at the University of Michigan, estimates that perhaps one-fifth of welfare recipients now deliberately avoid jobs owing to the chump-change factor. Perhaps half that group might be enticed to work by a more reasonable minimum wage, roughly suggesting a best-case result of a 10% reduction in welfare rolls. Sound insignificant? Clinton’s fiscal 1996 budget proposal contains $223 billion in social welfare spending. A 10% reduction from such a figure would represent a fantastic savings--enough to fund serious workfare initiatives for most of the rest of the chronically unemployed.

In a sense, raising the minimum wage might achieve for the poor something the collapsed Clinton health-care reform failed to achieve. “For welfare recipients, especially mothers, losing health-care benefits is by far the greatest barrier to going to work,” Danziger says.

In most states, if you’re on the dole, Medicaid is free. Get a job and your Medicaid eligibility expires--and chances are your employer provides no health insurance. Danziger notes, “An unreported aspect of the Clinton health-care reform was that by guaranteeing care to everyone, it would have ended the leading crazy disincentive that now prevents welfare recipients from working. But since the President couldn’t get health reform, a higher minimum wage may be the next best thing in terms of making work attractive.”

Minimum wages affect more than the bottom of the ladder. Historically, the median wage for hourly workers tracks the minimum wage as a multiple. Today, at $7.92 an hour ($15,840 for a year’s full-time work), the median hourly wage is worth less than in the 1960s, too. Raising the minimum wage would have a ripple effect of increasing wages for workers now in the $5-to-$8-an-hour group--those who form the core of the virtuous working poor, battling with all their might to escape social dependency.

Yes, the cost of lobster fajitas in yuppie restaurants, and Life-Sized Barbies at the Toys ‘R’ Us, would rise slightly. But if affluent voters and politicians won’t make such small sacrifices to fund policies that reward free-market work, just what sacrifice will they make?

Since most welfare recipients are women, some analysts see a higher minimum wage as a woman’s benefit bill--perhaps a reason for the lack of conservative enthusiasm. Yet properly construed, the initiative should be seen as beneficial to men. “Raising the minimum wage would be pro-family because it would make poor men more attractive husbands economically,” says Jared Bernstein, an economist at the Economic Policy Institute, a Washington think tank.

Infuriating as it is, Murray’s “Losing Ground” contains many haunting insights, among them how, to women in the welfare culture, a “child provides the economic insurance that a husband used to represent.” Today, at the minimum wage, an unskilled man who wants to work and marry offers a prospective wife less than the government offers via the dole. If the minimum wage were raised that would change.

The decline in two-parent families in the United States since the 1960s is commonly ascribed to perverse welfare policy that rewards living out of wedlock. But how about the declining minimum wage, which leaves the entry-level working man in the humiliating position of bringing into the house less money than the baby’s welfare check?

The past two decades of eroding rewards for hourly work seem tailor-made to discourage men from taking responsibility for children. If the right cares, as it claims to, about reversing the “fatherless America” effect, higher minimum wages would be a good place to start.