Congress seems almost certain to pass an increase in the minimum wage this year. After capturing both houses of Congress in the 2006 midterm elections, Democrats have made passage of a minimum wage increase a high priority. Both the Senate and the House have passed bills already, although differences between the two houses will require a conference committee.
Raising the minimum wage will harm workers whose productivity does not warrant a wage increase. They will lose their jobs, work shorter hours, or be forced into uncovered sectors of the economy. Welfare recipients seeking jobs will be even less attractive to employers than they are now. Only those workers who retain their jobs will be better off with a wage increase. As the Nobel Prize-winning economist George Stigler once put it, better forty hours a week at $5.15 an hour than zero hours at $7.25.
Raising the minimum wage is bad public policy for another reason, however. The minimum wage provides a classic instance of what William Graham Sumner called "the forgotten man" in his classic work, What Social Classes Owe to Each Other:
The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C's interests, are entirely overlooked. I call C the forgotten man. (Sumner, p. 65)
On the minimum wage issue, policy analysts and politicians who want to reduce income inequality put their heads together and decide what employers will do for employees. The "forgotten man" in this case is the businessman, targeted by policy-makers simply because he has more income than the unskilled worker. He has all the classic characteristics of the forgotten man in Sumner's formulation; he is "worthy, industrious, independent, and self-supporting. He is not, technically, u2018poor' or u2018weak'; he minds his own business, and makes no complaint. Consequently the philanthropists never think of him, and trample on him." (Sumner, p. 66.)
Of course, as any political observer will tell you, business lobbies are not really forgotten. In fact, they are never without a voice in Washington. Throughout the long history of the minimum wage, businesses have consistently been organized in opposition, while low-income workers almost always fail to mobilize. When the political conditions are ripe, however, as they are now – a Democratically-controlled Congress, stagnating median income, and a minimum wage that hasn't been raised in ten years – the political clout of small business lobbies essentially evaporates. Even Republicans will desert the small businessman, as can be seen from the 943 margin by which the Senate passed the minimum wage bill in February.
Passage of some minimum wage increase appears to be inevitable this year. Congress should provide tax relief sufficient to offset the costs of the minimum wage increase to small business. The Senate bill includes $8.3 billion in tax relief for small business; the House bill includes no such provision. President Bush has indicated that he will only sign a bill increasing the minimum wage if the legislation includes some tax relief for small business. He should keep this promise to the forgotten man.
March 21, 2007