Soon the Senate will take up Sen. Edward Kennedy's bill to raise the minimum wage to $6.15 in two stages by next September.
Conservative think tanks, business lobbies and the fast-food industry have been inundating the media with studies claiming that a higher minimum wage would cost working people jobs. The law of supply and demand holds that if you raise the price of something (in this case, workers), people ordinarily buy less of it. So if an employer has a fixed amount to spend on payroll, and wage costs go up, the same pay will be divided among fewer workers.
But in the case of jobs, there are two big things wrong with the theory. First, higher wages often buy greater loyalty and effort. What the employer loses in higher payroll costs may be gained in increased productivity and reduced turnover, recruitment and training costs.
Low-wage, dead-end jobs are famous for high turnover. Convert them into decent jobs with family wages and fringe benefits and workers tend to stay longer and work harder. The employer who complains that it's hard to get good help is usually the one paying the lowest possible wage that will attract anyone.
Second, there is a much bigger factor that influences whether unemployment rates go up or down -- the behavior of the Federal Reserve. If the Fed lets the economy grow at its potential (which it is finally doing), there is effectively full employment. Even with higher minimum-wage laws, employers just absorb the payroll cost in order to attract workers and make economies in other ways.
Lately the Federal Reserve has deliberately raised interest rates, on the premise that employment was nearly over-full, and hence inflationary. But if there are really more jobs than workers, what better time to give a boost to people at the bottom?
The inflationary potential of full employment is more a phenomenon of the high end of the job market. If there are not enough high-skill workers to go around -- for example, computer programmers -- full employment does give them the bargaining power to demand pay increases which at some point are inflationary.
But the minimum wage targets the low end of the labor market, where workers have far less leverage with employers. A minimum wage increase to $6.15 an hour has little impact on someone earning, say, $30 an hour.
As it happens, the past two years have provided a fine natural experiment to test the effect of a higher minimum wage on job creation. The minimum wage was last raised, in two stages, in 1996 and 1997, to its present level of $5.15. Opponents of that increase made dire predictions of job losses.
But of course, during that period unemployment came steadily down, and most dramatically among the very groups most affected by the minimum wage: minorities, teenagers and people without college degrees. This year the unemployment rate among black men hit its lowest level ever.
During this same period, the gap between the wages of ordinary workers and the incomes of executives has increased to record levels. Today the ratio is nearly 500 to one.
During this period, the restaurant industry and its think tank, the Employment Policies Institute, put out repeated reports shedding crocodile tears for all the jobs that would be lost, especially among the very low-income people the legislation was intended to help. These studies also claimed that most people who benefit from a higher minimum wage are teenagers from affluent families.
In truth, 72 percent of minimum- wage workers are adults, about half are full-time workers, one-third work at least 20 hours a week, and their family incomes are about $15,000 below the national average. Mainly, Kennedy's proposed dollar-an-hour increase would put $2,000 a year in the pockets of working families at or near the poverty line.
Although their academic allies have put out a lot of compassionate nonsense about how the minimum wage hurts the very people it aims to help, business groups oppose the minimum wage for a more basic, self-serving reason: It costs them money.
In this economy of uneven prosperity, Congress has removed much of the safety net and insisted that people work for a living. It's hard to disagree with the credo that fit people should work. But whoever demands work should also support a living wage.
Robert Kuttner is co-editor of the American Prospect.