TOPICS > Politics

House Votes to Raise Minimum Wage by 40 Percent in Two Years

January 10, 2007 at 5:31 PM EDT

KWAME HOLMAN: It was on August 20, 1996, that President Bill Clinton signed the last increase in the federal minimum wage, a 90-cent hike, bringing it to the current rate of $5.15 an hour.

In the decade since, Democrats tried to raise the wage further, but were unable with Congress in the hands of Republicans. Now with power in their hands, Democrats in the House tried again this morning.

California’s George Miller sponsored the bill.

REP. GEORGE MILLER (D), California: This is a big day, because this is the first time in 10 years that the Congress signals that, in fact, we are going to raise the minimum wage.

It’s what our leader, Speaker Pelosi, said she wanted to do in this first 100 hours. In this first 100 hours, she wanted to address urgent parts of the national agenda that are of deep concern to the American people.

KWAME HOLMAN: The proposal, which would directly affect 2 million workers, and indirectly as many as 13 million, would boost the federal minimum wage $2.10 cents, to $7.25 an hour over the next 26 months, in three stages: to $5.85 an hour 60 days after being signed into law; to $6.55 an hour a year later; and to $7.25 an hour a year after that.

According to the Labor Department, minimum wage earners tend to be young, part-time workers, and often are under the age of 25. Many have never married and are more likely than the rest of the workforce to be a woman or minority.

Democrats repeatedly cited that worker profile, arguing the increase was a matter of fairness…

CONGRESSMAN: The little guy is going to get help from this Congress!

KWAME HOLMAN: … while Republicans said raising the wage was bad economics that would do nothing to reduce poverty.

CONGRESSMAN: It will harm both the wage-payer and the wage-earner.

KWAME HOLMAN: Republicans argued the increase would drive up payroll costs even for employers who pay above the minimum wage, forcing small businesses to lay off workers or hire fewer new ones. California’s Dana Rohrabacher said those economic realities prevented Democrats from proposing the wage be raised even higher.

REP. DANA ROHRABACHER (R), California: Why are we not offering a minimum wage hike of $5 an hour, or $10, or maybe even $20 an hour more? We know that that’s not realistic, because there is a downside that can be calculated.

In fact, by mandating the pay raises that we’re talking about today, economists have estimated that about 1.6 million people, the people at the very bottom rung of our economic ladder, will be put through great hardship.

KWAME HOLMAN: Texan Pete Sessions warned of the potential impact on those workers at the lowest end of the pay scale.

REP. PETE SESSIONS (R), Texas: I will tell you that these 1.6 million jobs were important to families and people. It may not be much of a job. It may be in a small, rural community, but they were jobs that were important to those people.

They were jobs, even if they aren’t high-paying jobs, that would provide them the opportunity to get up, and find self-worth, and go and do their very best, perhaps not just with limited resources, but with the very best that that community may offer.

KWAME HOLMAN: But throughout the debate, Democrats charged that Republicans had chosen to help wealthy interests during their time in power and now were against helping lower-income earners. New Jersey’s Rob Andrews.

REP. ROB ANDREWS (D), New Jersey: When the energy bill was on the floor, the energy companies came in and wanted massive subsidies and no crackdown on pricing. It was their day, and they got it.

When the tax bill was on the floor, the wealthiest people in the country, people making more than $300,000 a year, wanted massive tax breaks. It was their day, and they got it.

I’m sorry to disappoint the opponents of the minimum wage, but this is not your day. This is the day for the people who empty the bedpans, change the bed linens, sweep the floors, and do the hardest work of America.

After a 10-year wait, even though they don’t have the lobbyists here, even though they don’t have the political action committees here, this is their day.

KWAME HOLMAN: The measure passed easily, as more than 80 Republicans joined all Democrats in favor.

The Senate, meanwhile, is expected to move perhaps in the next few weeks on similar legislation. President Bush has said he will support a wage hike if it’s paired with tax relief to help small businesses, something not in the House version.

Reducing income inequality

Diana Furchtgott-Roth
Ctr. for Employment Policy, Hudson Inst.
I don't think that the minimum wage [increase] would help reduce any gap that we have in prosperity.

GWEN IFILL: The movement toward an increase in the federal minimum wage is only one part of a larger debate about rising economic inequality in America. Can boosting wages at the bottom of the scale do anything to address that issue?

For a closer look, we turn to David Shipler, the author of the book, "The Working Poor: Invisible in America." He won the Pulitzer Prize in 1987 for non-fiction. And Diana Furchtgott-Roth, director of the Center for Employment Policy at the Hudson Institute, from 2003 to 2005, she was chief economist at the Department of Labor.

Let's call this, for a moment, the prosperity gap, Diana Furchtgott-Roth. What would the minimum wage do to close that, if indeed it exists?

DIANA FURCHTGOTT-ROTH, Center for Employment Policy, Hudson Institute: Well, I don't think that the minimum wage would help reduce any gap that we have in prosperity. But if we go back, we can see that the economy is not doing too badly.

We have an unemployment rate of 4.5 percent. We have a lot of people employed. We've created 1.6 million jobs over the past year. So the economy is doing well in producing a lot of jobs for a lot of people.

And inequality, the gap between how much people spend at the top and how much people spend at the bottom, is about 2.5. The top group spends 2.5 percent that those at the bottom spend. So we don't have a big inequality gap either.

What the minimum wage would do, would be adding $14 billion to small businesses' and employers' bills. And they're not just going to sit there and take it. They're going to reduce their workforce.

They're not going to hire people with low skills. They're not going to hire teenagers. So teenagers are going to have a harder time getting summer jobs. Low-skilled people are going to -- it's not a choice between a $7.25 job and a $5.15 job. It's the choice between a $5.15 job and no job for a lot of people.

GWEN IFILL: Ms. Furchtgott-Roth describes this as a spending gap, basically, people are spending more on the lower ends than on the upper ends, not as an income gap. What do you think, David Shipler?

DAVID SHIPLER, Author, "The Working Poor": Well, there a couple of ways to look at it. As an income gap it exists, but another way to see it is a gap of net worth, family net worth.

You know, the Federal Reserve reports that, between 2001 and 2004, the top 10 percent, the wealthiest 10 percent of American households increased their net worth by 6 percent, to an average of $3.1 million. The bottom 25 percent decreased their net worth to minus $1,400 on average.

That's a big chunk of American households, one quarter who owe more than they own. This is a huge disparity.

And I think it's probably a more accurate measurement than income even, because income is a still photograph. Net worth includes debt, and long-term spending, and acquisitions, and so forth. And it's a moving picture, and it gives you a fuller picture of the family situation.

GWEN IFILL: Does increasing the minimum wage do anything about that?

DAVID SHIPLER: Well, it won't hurt. But it hits, you know, a relatively small percentage of the workforce, actually. And, in fact, the higher minimum wage, $7.25 an hour, in 2009 still will leave people below the poverty line.

Remember that most poor households in America are headed by single parents. And most of them are women. So you have one wage earner in a household.

If you want to figure out the annual wage, all you have to do -- it's a simple math issue. You just multiply the hourly wage times 2,080, which is the number of work hours in a year, if you get 40 hours of work a week. It comes out to $15,080 a year at $7.25 an hour.

That's pretty low to support a family on. The poverty line, the federal poverty line, for a family of four with one adult, is just under $20,000 a year. To get that, you'd have to earn $9.60 an hour.

Skills and education gaps

David Shipler
Author, "The Working Poor"
We lock in disparities in public education by the way we finance it, which is mostly through property taxes, which means that upper-income communities have more money to spend than lower-income communities.

GWEN IFILL: OK, well, let's talk about that income, I mean, the wealth gap, the net worth gap that David Shipler is talking about.


GWEN IFILL: I heard you nod and say, yes, that makes a little bit of sense. Is that caused by low earners earning less or by high earners earning or possessing more?

DIANA FURCHTGOTT-ROTH: Well, what's really important is what they possess in the way of educational skills. If you look at the bottom fifth of the population and households in the bottom fifth of the population, they have an average of half an earner per household. In other words, there's one earner in every two households.

If you look at the average numbers of earners in the top fifth, there's 2.1 earners. And not only are there two full-time earners, but also maybe a teenager maybe has a job, for example. That's the biggest difference.

And 80 percent of people at the top group have gone to college, compared with 40 percent at the bottom. So what we really have is a skills gap and education gap.

Interestingly enough, the bottom gap, in the bottom fifth, 33 percent own their own homes free of mortgage. Only 17 percent in the top group own their homes free of mortgage.

So what we have is a situation where, in the bottom group, there are a lot of retired people who have existing assets. And what we need to do to get people from the top to the bottom, that's our biggest challenge.

We don't want to look at averages. We have to say, "How can people at the bottom get on the top?" And I think there's a good quote from David's book on the working poor. He says, "Ultimately, the best way to improve a worker's wage is through promotion and upward mobility."

We need to look at education. There's a good report from the New Commission on the Skills of the American Workforce called "Tough Choices, Tough Times," right here, which I recommend to all your viewers. It talks about having more vocational education in high school, more education for adults.

And these are positive things we can do. Paying teachers more is another recommendation to get high-skilled teachers. These are things we can do to help people who are not doing well. And that's what we need to focus on.

GWEN IFILL: Skills, education?

DAVID SHIPLER: Yes. You know, we lock in disparities in public education by the way we finance it, which is mostly through property taxes, which means that upper-income communities have more money to spend than lower-income communities.

States do redistribute this money to some extent, but it doesn't make up the gap. Poorer kids from poorer families and poorer communities often need, actually, more help in schools than wealthier kids do. And we're not really doing much about this.

And I think Diana is absolutely right. The skill levels are abysmally low in many parts of the labor force. And we're not competitive globally. I would think, in fact, American business executives would be very concerned about this, because it means that American workers cannot really compete with those in many other countries.

Providing for families

Diana Furchtgott-Roth
Ctr. for Employment Policy, Hudson Inst.
What we need to make sure is, even people whose parents don't have a college education, get an education or vocational training and an apprenticeship, which can lead to very high-paying jobs in the skill trades.

GWEN IFILL: And, in fact, a lot of American businesses supported this minimum wage bill. I'm curious about the old adage that a rising tide lifts all boats. A lot of people would agree that the economy did not do that badly in the last year or so, but yet all boats don't appear to have been lifted.

DIANA FURCHTGOTT-ROTH: Well, again, I think we've got to look at education. If you look at the unemployment rate for high school dropouts, for adults 25 and over without a high school education, it's about 6 percent. If you look at the unemployment rate for people with a B.A., it's about 2 percent. Even unemployment rate for people with just a high school diploma is 4 percent, less than the average.

You've got to get that education and those skills, and then you get to keep your job. The people without skills...

GWEN IFILL: Pardon me. Are you more likely to have that education if your parents had that education, more likely to have the net worth if your parents owned a home?

DIANA FURCHTGOTT-ROTH: Well, I think the education part is very important. And the education part -- what we need to make sure is, even people whose parents don't have a college education, get an education or vocational training and an apprenticeship, which can lead to very high-paying jobs in the skill trades, electricians, plumbers...

GWEN IFILL: And is that something the government should be doing?

DIANA FURCHTGOTT-ROTH: The government should certainly be providing more in the public school area, more choices, and more choices for the lower skilled. President Bush has proposed career advancement accounts where people who are unemployed would have $3,000 to go to school with and get some additional skills.

GWEN IFILL: Let me ask you about some of the other issues, housing costs or housing burdens.

DAVID SHIPLER: Housing is very important. I'm glad you brought it up, Gwen, because it's part of a chain reaction of events.

For example, a low-income family working that does not have any housing subsidies, doesn't live in public housing, doesn't have Section 8 vouchers they can use with a private landlord to help pay, can pay 50 percent to 75 percent of their income for rent.

Now, rent is not an option. You have to write that check every month. You know, the car payment has to be made. Most people in this country need cars to get to work. You have to pay the electric bill.

The part of the budget that can be squeezed is for food. And that creates malnutrition. There was a very big study of 12,000 low-income families recently in six states that found that those who did not have family subsidies, or housing subsidies, rather, but were on the private market paying high rents had higher incidences of underweight children.

Now, we know that malnutrition in the first two to three years of life, when brain development is at its fastest pace, can create life-long cognitive impairment. Kids who have the lower IQs and have this cognitive impairment don't learn well. They get frustrated in school.

GWEN IFILL: Vicious circle.

DAVID SHIPLER: They drop out of school, and they join the cohort of high school dropouts who have higher health costs, worse health during their lifetimes. They are more likely to get in trouble with the law and go to prison. They earn less money, obviously, and so they pay less taxes. So it's a real chain reaction.

The middle class

David Shipler
Author, "The Working Poor"
For the minimum wage in 2009 to have the same purchasing power as the minimum wage did in 1978, it would have to be $9.25 an hour, not $7.25.

GWEN IFILL: Let me ask you, finally, about where the middle class is in all of this. When people think of minimum wage, they think of people at the poverty line, below the poverty line, yet what we hear politicians talk about is the middle class. Is that the bridge between the high earners and the low earners, or do they really exist?

DIANA FURCHTGOTT-ROTH: Well, I think that it's very hard to define "middle class," because we have a tremendous amount of turnover in our economy. We have about 150 million workers. Last year, we had about 55 million new hires, about 53 million separations.

People are turning over jobs. They're moving up through the income classes. If someone gets divorced, then -- two households earning half as much, they go into a lower income group. Two people get married, they go into a higher income group.

So the phenomenon of what is the middle class is very, very hard to define. But what's really important is people get their first rung on the ladder. And you don't want to do that by taking away the $5.15-an-hour jobs.

I mean, my teenagers couldn't get jobs at $7.25 an hour. No one would hire them. You want to have entry points; you want to encourage people to get in the workforce. And 75 percent of people on minimum wage move onto a higher-paying job within a year.


DAVID SHIPLER: You know, Jeff Rosensweig, at Emory University, did a little calculation that showed that, for the minimum wage in 2009 to have the same purchasing power as the minimum wage did in 1978, it would have to be $9.25 an hour, not $7.25.

One problem is the decline of union membership. It's lower now than it's been since the Depression. About 12.5 percent of American workers are in unions. And in the private sector, it's only 7.8 percent, which means we almost don't have labor unions in the United States, which means that the playing field is tilted.

You know, if you have a free market, in a really free market, the buyer and the seller both have to be on a level playing field. The seller of labor now is, at the low income levels, is not on a level playing field. They can't collectively bargain.

Now, there's a bill before Congress that's been there for a while, supported by a few Republicans in the Northeast, that would facilitate union organizing in the workplace. It wouldn't cost the federal government a dime to pass this. And it would probably help a great deal and a great many people, actually.