Minimum Wage Fuss Goes On and On ...

Late Wednesday on the Senate floor, Sen. Edward Kennedy again chided the Republican leadership for blocking a vote on boosting the minimum wage. Having failed to attach the measure to an immigration bill, the Massachusetts Democrat promised he'd try again with the next available legislation.

Senate Republicans have not yet decided on a strategy for dealing with the issue, notes Robert Greenstein, head of the Center on Budget and Policy Priorities, a Washington think tank. But both he and a spokesman for Senator Kennedy expect a vote sometime this month or next, with passage almost certain.

What will happen when the minimum wage goes from $4.25 an hour to $5.15 an hour over two years?

Some minimum-wage workers will become too expensive and lose their jobs, most economists reckon. But they differ in their estimates.

Alan Krueger, an economist at Princeton University, figures the loss might be 100,000. "You are talking small potatoes," he says. Moreover, the nation regularly adds some 200,000 jobs a month when the economy is expanding.

Other economists say the loss could be as high as 400,000.

Mr. Krueger, together with another Princeton economist, David Card, wrote a highly controversial study looking at the impact of a 1992 New Jersey minimum-wage boost, to $5.05, on jobs in fast-food restaurants. The study, making comparisons with similar restaurants in eastern Pennsylvania that were still able to pay the $4.25 rate, found that the New Jersey restaurants on average did not lay off workers and may even have hired more.

Mr. Card and Krueger found themselves at the center of a pitched battle over the minimum wage. Their data were attacked. But Krueger notes that a subsequent study by the federal government's Bureau of Labor Statistics found that employment in the entire New Jersey restaurant industry did grow at that time.

Krueger argues that the job loss is small after a minimum-wage boost because of "friction" in the labor market. Employers of minimum-wage workers often put signs out seeking new hires, but can't find them at that wage. So they keep the workers they have.

On the other side, some 12 million workers now getting between $4.25 and $5.14 would see their wages go up. "Thus 99 percent [of affected workers] would benefit," Krueger says. The earnings of an individual working full time at the present minimum wage would rise from $8,500 a year to $10,300.

In economic theory, nothing is free. But Krueger says the higher wages may keep down costly worker turnover and encourage harder work. If so, this would reduce the need for employers to accept lower profits or pass on the extra wage costs to customers in the form of higher prices or reduced service.

One Republican freshman, Rep. David McIntosh of Indiana, has proposed that the government bear the cost of improving the wages of low-income workers by letting employers not deduct the 15.3 percent Social Security tax applied to nearly all wage income. A worker getting a new, higher minimum wage would actually take home $4.56 an hour - not $5.15, he notes.

But Mr. Greenstein says this would mean "a pretty substantial reduction in payroll-tax revenues" at a time when the Social Security system already faces a massive deficit in the next century when the baby boomers retire. To avoid a high marginal tax rate on those making somewhat above the new minimum wage, the Social Security tax would have to be gradually phased in on earnings above $10,300, Greenstein says. That would hike the revenue loss considerably and add to the federal deficit.

Greenstein also doesn't want to help the poor through another boost in the earned-income tax credit, as Congress did in 1986, 1990, and 1993. That's because this tax credit - checks given to low-income workers by Uncle Sam after they file their taxes - would become much more expensive. At present, the tax credit phases out for a family with two or more children at the $28,500 income level. Any boost would make many more families with incomes somewhat above that sum eligible for the credit. This tax device already costs the federal government $19 billion a year.

So he favors a minimum wage hike, even if it costs some jobs.

John Kenneth Galbraith, a Harvard University professor, does not even accept the job-loss thesis, holding that higher wages would create new jobs. The minimum wage, he says, "does for the poor and unorganized what trade unions do for the better off and organized. It is a civilizing exercise in the market economy."