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Community Voices: Raising the minimum wage for a real recovery

Eli Markham

This past summer we saw wild swings in the stock market, a last-minute debt deal and even a rocking East Coast earthquake. But one thing we didn’t see — from Memorial Day to Labor Day — is any improvement in the economy.

There were 14 million Americans officially counted as unemployed — many of them for more than six months. If you count people who have given up looking for work, the number of Americans out of work climbs to more than 17 million. Even people fortunate enough to keep their jobs have seen wages frozen or even cut. Families across the country are struggling to make ends meet.

The future promises even more pain. As the funds from the federal stimulus package expire, state budgets are collapsing. According to the Center on Budget and Policy Priorities, the total budget deficit from 42 states and the District of Columbia is $103 billion. One of the worst states is New Jersey, whose $10.5 billion gap is nearly 40 percent of its budget.

Nearly every state is facing a budget crisis this year brought on by evaporating tax revenue. State governments across the country will be forced to cut local jobs — teachers, state troopers and nurses — to balance their budgets. So will municipal governments. Hundreds of thousands of laid-off state and city employees will join the 14 million already on the unemployment rolls.

But one group is doing better than ever: corporations. By the third quarter of 2010, non-financial corporate profits had recovered to $776 billion, or 5.3 percent of GDP — the highest level since the dot-com bubble. Profits for large corporations have recovered more quickly and more strongly than any other part of the economy.

Businesses that pay minimum wages are especially profitable right now. Wal-Mart, McDonalds, Sodexo, Yum Brands (the operator of Pizza Hut, KFC, Taco Bell and other fast food chains) and Target all made greater profits last year than they averaged from 2002 to 2006. Why are corporations making record profits but not hiring new workers? It’s an economic problem: lack of demand.

The average American has more than $10,000 in debt. Their house value has plummeted and they see no chance of getting a pay raise in the near future. As a result, they’re not likely to spend a lot of money. Businesses know that, so they aren’t investing in new technology or new employees.

Instead they’re just hoarding cash, waiting for the day when consumers start spending again. But consumers aren’t going to start spending again until businesses start hiring and raising wages.

 It’s a classic collective action problem. Everyone — including the corporations — would be better off if they started hiring again, but each business is maximizing its own short-term profits by being thrifty. Their hoarding has put the economy in a hole.

This was the same problem America faced during the Great Depression, and the government solved it with a massive fiscal stimulus. The government paid people to build bridges and tunnels and dams, which then gave them money to go out and spend.

Unfortunately, conservatives in Congress have decided to focus on the debt instead of the economy — the equivalent of mowing the lawn while your roof is on fire — and the large fiscal stimulus the country needs faces strong opposition in the House of Representatives. State governments, most of which are constitutionally mandated to run a balanced budget, are likewise unable to spend.

But there’s a policy tool that costs the government nothing and could get the economy moving again: the minimum wage. The Economic Policy Institute estimates that President Barack Obama’s 2008 campaign proposal to raise the minimum wage to $9.50 by 2011 would generate more than $60 billion in new consumer spending.

Without some help, American workers can’t get themselves out of this hole, and each month we delay sees greater numbers of American workers losing their employment, more families depending on low-wage jobs, and greater numbers of American children going hungry.

If we want to help Main Street recover, we should raise the minimum wage. Even if we are politically unable to do so at the federal level, raising the minimum wage state by state would still make a great difference.

Eli Markham is a researcher with The National Employment Law Project.