Massachusetts is poised to increase its minimum wage, which is currently set at $8 an hour. There are three versions of a proposed minimum wage hike currently in play: the Senate version; the House version; and a ballot initiative that will go directly to voters this November. I support raising the minimum wage for a variety of reasons, but primarily because I think that doing so is an issue of social and economic justice in a time of sharply rising income inequality.
In November of 2013, the Senate passed a bill to raise the minimum wage in the Commonwealth to $11 an hour. The Senate bill phases in the increase over the course of three years, raising the wage to $9 in 2014, $10 in 2015, and $11 in 2016, at which time the wage would be indexed to the Consumer Price Index (CPI) (the rate of inflation). Indexing the minimum wage to the CPI ensures that the purchasing power of the minimum wage will not erode.
Legislative leadership in the House will likely take a different approach. The House version, due to come out any day now, will couple any increase in the minimum wage with unemployment insurance reform. While the exact nature of the unemployment insurance reform is unclear, based on discussions in which I have participated, I am concerned that the unemployment insurance “reform” will either reduce unemployment benefits, tighten eligibility standards or both. At a time when we have more long-term unemployed than at virtually any other time in recent history, any measure that reduces benefits or limits eligibility seems misguided.
In addition to the legislative activity on Beacon Hill, the grass roots organization “Raise Up Massachusetts”, has succeeded in gathering the necessary signatures to put the issue on the ballot. You may have seen me in Belmont Center helping to gather those signatures so that you will have the opportunity to increase the minimum wage regardless of what happens on Beacon Hill. The ballot measure would increase the minimum wage to $10.50 an hour in 2016, at which time it would be indexed to the CPI.
Warnings about the detrimental consequences of a minimum wage increase are overblown. There are few topics in labor market economics as heavily researched as this one. The main critique of a minimum wage increase is that it has a negative effect on job growth. The Massachusetts Budget and Policy Center, however, notes that increasing the minimum wage has historically had negligible effects on job growth. In fact, while some opponents of an increase argue that the small business sector will be most adversely affected, some studies show that states with higher minimum wages tend to experience more small business job growth.
Why? Those of you who took macroeconomics will recall a basic principle: people spend their income in one of three ways – consumption, investment or savings. The great majority of those earning the minimum wage, like those collecting unemployment, do not use any of their income for savings and investment; rather it all goes to the third leg of the stool — consumption. In other words, it boosts aggregate demand in the economy. By stimulating aggregate demand, many economists believe that a modest increase in the minimum wage actually helps create jobs not reduce them. While individual businesses may have unique and varied experiences, I believe the evidence indicates that the overall effect of raising the minimum wage on small businesses specifically and job growth at large is negligible at worst and positive at best.
Finally, the escalating cost of living, particularly in a high cost state like Massachusetts, is also an important factor in this debate. The real value of the minimum wage adjusted for inflation has eroded over time. Despite periodic increases, the purchasing power of the minimum wage is $5000 less annually than it was in 1968. That value should be restored and protected by raising and indexing the minimum wage to the CPI. We have a minimum wage to ensure fair compensation for hard work. The minimum wage as is does not accomplish this goal.
There is no one simple solution to the complex challenge of income inequality. But raising and indexing the minimum wage is one of the best tools at our disposal to return towards an economic environment that properly rewards hard work. People who work full time should not live in poverty, or on the brink of it. I have been advocating on Beacon Hill for a sensible increase in the minimum wage. If that fails, I will work to encourage approval of the minimum wage ballot question in November.