The problem of income inequality has deepened during the sluggish economic recovery. New data generated by Emmanuel Saez, an economist at the University of California, Berkeley, show overall income increasing 1.7 percent since the economy returned to growth in 2009. The beneficiaries have been those at the highest income rungs, the earnings of the top 1 percent rising 11.2 percent. By contrast, the remaining 99 percent have seen their earnings decline by almost half of a percentage point.
This has been the trend the past three decades, the top 10 percent of earners collecting almost all of the income gains, the top 1 percent doubling its share of the national income to 20 percent. President Obama had the concern in mind when he proposed an increase in the federal minimum wage from $7.25 an hour to $9 an hour, lifting the incomes of roughly 15 million low-income workers. (The Ohio minimum wage is $7.85.)
The president stressed that a family of four living today on the minimum wage falls below the poverty line, adding: “Let’s declare that in the wealthiest nation on earth, no one who works full time should have to live in poverty.”
The arguments against an increase are well known. Critics warn about aggravating unemployment, already too high. They argue that employees become more expensive, small businesses, in particular, likely trimming workers, or finding their operations not in a position to hire, especially first-time job seekers. No question, there must be care in setting the minimum wage, avoiding the level at which harm comes to the economy.
At the same time, much research and analyses reveal that an appropriately higher minimum wage brings benefits overall. Workers have more in their pockets to spend, triggering local economic activity. A better wage tends to reduce turnover in work forces and improve worker productivity.
What would be the impact of a $9 minimum wage? Consider that inflation has eroded the current value. The increase put forward by the president would restore the minimum wage to its level in 1981. Timothy Noah of The New Republic, the author of The Great Divergence, a book on income inequality, noted recently that a minimum wage adjusted for inflation back to its 1968 peak would be $10.56 an hour today.
During the recent presidential campaign, the president and Mitt Romney both embraced the concept of linking the minimum wage to inflation (though Romney waffled at times). First, the wage must be set at a responsible level, for low-income workers and the economy as a whole. The thinking should apply: If the country is going to have a minimum wage, it should keep pace with the definition of minimum. That is true more than ever as the country copes with a troubling pattern, new income failing to flow in a way that reflects the contributions of all those who work hard. Instead, it ends up with a narrow few at the top.