The US Has Lowest Minimum Wage and Most Young People Without Jobs Among Wealthiest Countries

The US Has Lowest Minimum Wage and Most Young People Without Jobs Among Wealthiest Countries

Over 100 economists sign petition to raise the minimum wage -   August 13, 2013
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Robert Pollin is professor of economics at the University of Massachusetts Amherst. He is the founding co-director of the Political Economy Research Institute (PERI). His research centers on macroeconomics, conditions for low-wage workers in the US and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the US. His latest book is Back to Full Employment. Other books include A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity.


The US Has Lowest Minimum Wage and Most Young People Without Jobs Among 
Wealthiest CountriesJAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I'm Jaisal Noor in Baltimore. And welcome to this latest edition of the PERI report.

Around the country, low-wage and retail workers have been striking for better wages. A new study by the Organization of Economic Corporation and Development has found that the U.S. minimum wage lags most rich countries. As a share of median income, the U.S. minimum wage ranks 24th out of 25 rich countries, according to Bloomberg News.

Now joining us to talk about the latest news around the minimum wage is Bob Pollin. He's the founder and codirector of the PERI institute in Amherst, Massachusetts, and a regular contributor to The Real News.

Thank you so much for joining us, Bob.


NOOR: So, Bob, there's been a lot of talk of the minimum wage recently in the media. There's been workers striking around the country and one-day strikes. And Republicans have said we should eliminate the minimum wage altogether to boost jobs. But you kind of have a different take. You're one of 100 economists calling for an increase in the minimum wage to $10.50 an hour. Can you talk about why you say the minimum wage needs to be increased?

POLLIN: The minimum wage in the country right now, at $7.25 an hour, is about $3 an hour--more than $3 an hour below what it actually was in 1968 in this country. In 1968 in this country, the minimum wage, after we properly adjust for inflation, was $10.65 an hour. That means in 1968--let's take a young girl in Texas walking into her job at McDonald's on the first day. Legally she would have to have been paid $10.65 an hour. That's in 1968. So the proposal by Congressman Alan Grayson is basically just to bring the United States minimum wage today back to where it was in 1968.

Now, on top of that, if you allow for the fact that the economy's productivity has grown, which of course it has, which means that we can do things more efficiently, the economy's labor productivity has grown by 135 percent since 1968. So if you say that the--take the 1968 federal minimum wage and adjust for inflation and adjust for productivity, if you bumped up the minimum wage each time average worker productivity went up as well, the minimum wage today, the minimum wage today should be $25 an hour. So if we could afford a $10.65 minimum wage in 1968, we can easily afford a $10.50 minimum wage today.

NOOR: A lot of critics of raising the minimum wage say that the cost will hurt these fast food establishments. What's your response to such claims?

POLLIN: Well, we've heard this for generations, that if you raise the minimum wage, it actually hurts the people it's supposed to help. That is, the low-wage workers experience unemployment when you raise the minimum wage, they say, critics say, because businesses don't want to pay more, so they just won't hire as many workers.

The only problem with that argument is that it's inconsistent with the evidence and has been for generations. First of all, one piece of evidence. In 1968, when the minimum wage was $10.65 an hour, the U.S. unemployment rate was 3.7 percent, not 7.5 percent, what it is today. So, clearly, we can operate an economy with a very low level of unemployment along with a decent minimum wage. So that general point is also true.

But then, if you get into more specifics, what actually happens when the minimum wage goes up? Does it cause unemployment in, say, the fast food industry, where you have a high concentration of low-wage workers? And the answer is, from the research, is that it does not.

The question is: well, why doesn't it? Because, okay, you are raising the business's cost. Then why doesn't it cause higher unemployment, businesses laying off workers? The answer here, I believe, is that--we've done--myself and my coworker Jeanette Wicks-Lim have done research, along with other researchers, that find that the overall cost increase that, say, a McDonald's would experience due to a minimum wage increase is generally modest. So, for example, if we go from today's minimum wage of $7.25 to $10.50, how much would it cost an average fast food restaurant like McDonald's? What Jeanette Wicks-Lim and I found is that the average fast food restaurant would experience a cost increase equal to 2.7 percent of its total sales--2.7 percent of sales. Well, that's something, but it's not that much, just to put it in some perspective. For a McDonald's, say, if you're charging $4 for a Big Mac and you wanted to absorb the cost of the wage increase through the price of the Big Mac, you'd raise the price of the Big Mac from $4 to $4.05, $4 to $4.05. That would cover half of the entire cost increase for all the workers at McDonald's getting a wage increase to $10.50. Now, yes, you would still have to cover the other half, and that could come through the firm becoming modestly more productive. That--and here's how you get modestly more productive. You have less turnover and you have less absenteeism. You have the workers more committed to the job. And then, yes, modest cuts, relative cuts for the owners. The owners would have to absorb maybe 1 percent of that cost. And through that combination, you could cover the entire cost increase to bringing workers up to a $10.50 minimum wage at fast food restaurants. At other types of businesses, the adjustment would be much less.

NOOR: One of the other things you hear thrown around Fox News and by conservative pundits is that, you know, these low-wage minimum wage workers are all teenagers, and we know that's not true. Ninety-one percent of minimum wage workers are not teenagers, in fact. That being said, the U.S. boasted the highest share of young people with jobs in 2000 among wealthy countries. Now the opposite is true. The employment rate of 25- to 34-year-olds is the lowest among wealthy countries according to The New York Times. Bob, could the U.S. non-employment rate among young workers be related to the low minimum wage?

POLLIN: Yeah, well, I mean, you have the situation in which we have overall a very low percentage of the overall adult and teenage workforce is in the labor force. In fact, you know, we have a 7.5 percent unemployment rate. But if we were to bring back the workers who have dropped out of the labor force, the official unemployment rate would go back up. I don't have it exact, but probably around over 8 percent right now. So you've had people drop out. You've had people drop out in--the young people drop out. And why do they drop out? Well, to a very large extent they drop out because they're discouraged, because they're not getting jobs because of the slack in the labor force. So it could also be to some extent the fact that the wage is too low. But in my view, the primary factor is the slack in the labor force, so that you have relatively high rates of people dropping out of the labor force. And that's why you have--while you have a 7.5 percent unemployment rate officially, you have closer to 14 percent who are either unemployed or underemployed or who have recently dropped out of the labor force. That's about 22 million people.

NOOR: Bob Pollin, thank you so much for joining us.

POLLIN: Thank you very much for having me.

NOOR: Thank you for joining us on The Real News Network.


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