The income trap

Marketplace Staff Oct 27, 2006

TEXT OF STORY

KAI RYSSDAL: Imagine for a moment getting by on less than $11,000 a year. If you earned the current federal minimum wage that’s about what you’d make working full-time. It’s been almost 10 years now since Congress raised the minimum wage to the current $5.15 an hour. So as Marketplace’s Amy Scott reports, this election season many states are taking matters into their own hands.

AMY SCOTT: On a recent afternoon at city hall in Cleveland, Ohio, Amanda Stewart tells a crowd of activists and reporters about life on minimum wage. She makes $5.50 an hour at a sub shop. She’s 20 years old and she supports herself, her sister, and a pregnant niece. Stewart is here supporting a ballot initiative that would raise the state minimum wage to six-eighty-five an hour.

AMANDA STEWART: Just having the extra money to survive from payday to payday, it’d be a big difference to me. I’d be able to be surviving, but not struggling as hard.

People in Ohio and five other states will vote this election whether to raise their state minimum wages anywhere from $1 to a $1.70 above the federal minimum. Twenty-two states have already passed similar measures thanks to heavy campaigning by pro-labor groups like ACORN and the AFL-CIO.

Liana Fox is with the union-backed Economic Policy Institute. She says many state officials are tired of waiting for Congress to act.

LIANA FOX: On December 2, we will set the record for the longest period of time that the federal government has failed to act to raise the minimum wage since the minimum wage went into effect in 1938. Many of these states have tried repeatedly to pass higher minimum wages and have been unable to. So this is why they’re taking it to the ballot.

In Colorado, a ballot initiative has inspired a series of graphic television ads from the opposition.

[ Political ad: Until you have the facts, Amendment 42 may sound like a feel-good idea . . . ]

On the screen a roll of toilet paper suddenly turns into a cheese grater.

[ Ad continues: The feel-good idea quickly turns painful. ]

A coalition called Respect Colorado’s Constitution produced the ad. The group includes the Colorado Restaurant Association, local chambers of congress, and businesses that hire low-wage workers.

Jan Rigg is spokesperson for the coalition. She says Colorado’s Amendment 42 would not only raise the state minimum wage to $6.85 an hour, it would also impose annual adjustments for inflation. Rigg says that would lock businesses into paying more even if the economy goes sour.

JAN RIGG: Sounds like a good idea to raise the minimum wage, and we know the public’s sympathetic to that. But that amendment goes much farther than that, and that’s the problem.

Other groups argue that raising the minimum wage kills low-wage jobs.

Jill Jenkins is chief economist with the Employment Policies Institute. The group is funded by the restaurant and hotel industries. Jenkins says minimum wage increases end up benefiting teenagers from well-off families more than the low-income workers such laws are intended to help.

JILL JENKINS: When you make employers pay more, it’s going to actually decrease their incentive to hire somebody who may require more training. So who’s losing their jobs are the least educated.

Many economists dispute that argument. They say when workers have more money in their pockets they spend more and the whole economy benefits.

Matt Fellowes studies low-income issues at the Brookings Institution. He says less than a million and half workers earn the federal minimum wage today. If Congress raised that minimum to $7.25 an hour, Fellowes says about 14 million workers would benefit

MATT FELLOWES: But it’s important to remember that of that 14 million, many of them live in states that already have some type of increase in the books. So no one’s going to be telling you or should be telling you that a minimum wage increase will have large negative effects or large positive effects. Because it’s just a reality that not that many people earn the minimum wage.

Still, Fellowes says, Congress is under a lot of pressure to act after a failed effort a few months ago.

If the Democrats win a majority in the House this election, they’ve promised to pass legislation within 100 hours of taking control. But Fellowes says President Bush would probably veto such a bill. With just two years left in his term he has no political incentive to sign it.

I’m Amy Scott for Marketplace Money.

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