October 6, 1977
Page 32700
Mr. MUSKIE. Mr. President, I support this bill, which provides an increase in the minimum wage from $2.30 to $2.65 per hour, both as a needed boost to the earnings of low wage workers and as a matter of economic policy. As chairman of the Budget Committee, I want to explain the reasons for my support of this bill.
One of the major responsibilities of the Budget Committee is the formulation of appropriate fiscal policy to deal with unemployment and inflation. The committee is concerned with national economic policies which provide for, in the language of the Budget Act, the "balanced growth and development of the United States." The level of the minimum wage is a major economic policy issue and, therefore, has important significance for the Budget Committee.
The major effect of the increase in the minimum wage will be to raise the incomes of many of our poorest workers. It is estimated that about 4 million workers would be affected in 1978 if this legislation were adopted.
The proposed increase in the minimum wage does no more than restore the average relationship between the minimum wage and earnings in manufacturing which has existed since 1960. The minimum wage has failed to keep up with manufacturing earnings in the 1970s, because of the high rate of inflation. It is distinctly unfair to force the lowest paid workers in society to bear a greater burden from inflation. Even at the proposed level of $2.65 per hour, the minimum wage would provide only $5,512 in earnings per year, which is below the projected 1978 poverty level of about $6,200 for a family of four. It is often said that public policy tends to discriminate against the working poor in our society. We should not compound this difficulty by allowing the continual erosion of the real value of the minimum wage.
Mr. President, I would now like to deal with several objections to raising the minimum wage which have been offered by opponents of this legislation, and which are of interest to the Budget Committee. Specifically, I wish to address the argument that an increase in the minimum wage will raise labor costs and thereby increase unemployment and inflation.
Let me be very candid. Obviously raising the minimum wage will increase total wages and labor costs — that is the objective of the policy. Higher labor costs are likely to have some negative effect on the level of employment and the price level. This should surprise no one. Policy decisions almost always involve difficult choices between competing goals. But the relevant policy issue is the size of these effects. Are the effects on unemployment and inflation large enough to make a 15 percent increase in the minimum wage undesirable?
The available evidence indicates that this increase in the minimum wage would have only small effects on unemployment and inflation. These economic effects were anticipated by the second budget resolution and are consistent with the economic assumptions of the resolution.
The committee staff estimates that the increase might add 0.2 percent to the unemployment rate, and some recent research by Prof. Edward Gramlich of the University of Michigan implies that the net job loss might be even smaller. In any case, the employment effects of the minimum wage will be dwarfed by the effects of fiscal and monetary policy, by changes in consumer spending, by swings in housing and business investment, and by fluctuations in U.S. exports. The minimum wage is simply not an effective instrument for solving the unemployment problem.
The inflationary impact would also be small. The increase from $2.30 an hour to $2.65 might add as much as 0.5 percent to the price level by 1979. But this would be a onetime change resulting from the restoration of the real value of the minimum wage — it would not add to the rate of inflation in subsequent years. I believe the 15 percent increase in the minimum provided in this legislation is moderate and responsible in terms of its impact on prices.
Mr. President, there is a more fundamental point to be made about the costs of fighting inflation and unemployment. Those who would fight unemployment and inflation by holding down the minimum wage while other wages and prices are rising are asking the lowest wage workers to bear the entire cost of the fight. Such a policy is both unfair and inefficient. Our goals of full employment and lower inflation should be pursued by appropriate fiscal and monetary policies which apply to all citizens, and by jobs programs targeted on the unemployed. The way to reach those goals is to make sure our fiscal and monetary policies maintain the economic recovery.
Reducing the real wages of many of our poorest workers is not sound policy.