Not getting by on minimum wage

@CNNMoney September 27, 2011: 9:39 AM ET

NEW YORK (CNNMoney) -- Most experts agree that to get out of the economic slump, we need more jobs.

But another problem is that millions of Americans already have jobs that don't pay very much.

Getting the economy going will require more than just creating a large number of low-wage positions, said Paul Osterman, economics professor at MIT. Raising the minimum wage to get more cash to the working poor is just as crucial, he said.

About 20% of American adults who have jobs are earning only $10.65 an hour or less, according to Osterman's analysis. Even at 40 hours a week, that amounts to less than $22,314, the poverty level for a family of four.

The federal minimum wage currently stands at $7.25 an hour (18 states set their own rates above the federal level, maxing out at $8.67 an hour in Washington State).

But increases have not kept up with inflation. When adjusted for inflation, the highest federal minimum wage was in 1968, when it was the equivalent of $10.38 in today's dollars.

Poverty's home: The suburbs

Osterman, who has written a new book called "Good Jobs America," said gradually raising the federal minimum wage to something close to that level over the next few years would be an important first step to helping the working poor climb out of poverty, while injecting more money into the economy.

"If you give someone making $15,000 a year a $3,000 increase, that's going to make a tremendous difference in their life," he said.

With a greater percentage of the nation's income going to corporate profits than ever before, Osterman argues that businesses can afford a higher minimum wage.

"There needs to be standards in the job market," he said. "If the object is simply to minimize costs, we can use slaves again."

A 'job-killing' policy?

Many economists and small business owners fear that increasing the minimum wage would end up hurting the working poor rather than helping them, because employers who couldn't afford to pay more would be forced to cut staff.

But there's little empirical evidence to suggest that raising the minimum wage causes companies to cut back on hiring, according to Heidi Shierholz, labor economist for the Economic Policy Institute, a liberal think tank.

In fact, one study conducted by Alan Krueger, President Obama's pick for his next chief economic adviser, found little difference in employment levels of fast food industries in Pennsylvania and New Jersey, which have different minimum wages.

"When you look at surveys of businesses, they consistently list weak demand as the key problem holding hiring back. Wages are nowhere near the major concern for employers," Paul Sonn, legal co-director of the National Employment Law Project Action Fund. "They may not realize it but raising the minimum wage would help sales and help them increase their hiring."

Still, in the current political climate, there is strong opposition to anything that might cost companies money and deter them from adding to their payrolls.

"If you raise the price of anything, people take less of it. That includes labor," said William Dunkelberg, chief economist for the National Federation of Independent Businesses. "That's why you can't raise wages during bad times. If you raise the price of labor, and the economy is growing, maybe I'll still hire people. But not now." To top of page

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