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Inequality

An Economy Not Working for Workers

Research & Commentary
March 29, 2016

by Sheila Kennedy

The case for raising the minimum wage in Indiana remains clear and compelling, despite inaction from the state and federal governments. 

Sometimes, boring down to specifics can be more illuminating than generalities. So when we talk about the impact of the minimum wage on inequality, it may help to look at a specific example.

Indiana’s Institute for Working Families conducts research on Indiana’s economy — more specifically, the ways in which the state’s economy is or is not working for low-income Hoosiers who work. [pullquote]In not one county in Indiana can a single adult get by on a minimum wage of $7.25 per hour.[/pullquote]

The news, you will not be shocked to discover, is not good.

Recently, the Institute posted a list of 16 reasons why Indiana’s minimum wage should be raised. I encourage you to click through and read them all, but I want to highlight some of the most compelling.

  • In not one county in Indiana can a minimum wage of $7.25 per hour support even a single adult.
  • Waiters and waitresses in Indiana are paid $2.13 per hour by their employers, 29 percent of the minimum wage. The last time they saw a raise: a quarter-century ago, in 1991. Their industry overall has seen strong growth and profitability.
  • In Indiana, the median single adult working at the minimum wage needs to labor 48 hours per week to become self-sufficient. That number of hours increases to 108 hours for a single adult with one preschooler and one school-age child. For a family with two adults, a preschooler, and a school-age child, each adult would need to work 64 hours at the minimum wage for the family to be self-sufficient.
  • Standard and Poor’s cites rising income inequality as “contributing to weaker tax revenue growth,” making it more difficult for state and local governments to invest in education and infrastructure.
  • Children whose parents work for the minimum wage live below the federal poverty line. Research has found that children raised in poverty have lower academic achievement, poorer nutrition, fewer job prospects as adults, and worse physical health than their more affluent peers.

The usual objection to raising the minimum wage makes superficial sense: If businesses have to raise what they pay, they will hire fewer workers. Logical as that seems, the evidence from decades of research says otherwise.

As the Institute for Working Families notes, two recent meta-analyses of research on minimum wage increases during the 1990s found that “the minimum wage has little or no discernable effect on the employment prospects of low-wage workers.”

The reason for this seemingly counter-intuitive result: When the minimum wage goes up, the buying power of low-wage workers also goes up. Unlike wealthier Americans, low-wage workers spend those extra dollars, and that increased spending boosts the economy. Increased buying power translates to increased sales of goods and services; employers who see improved bottom lines hire more workers.

A raise in the minimum wage to 10.10 per hour would affect 637,000 Hoosiers, 23.4 percent of the workforce. That number includes 436,000 who are currently making less than $10.10 and another 201,000 whose wages would be pushed up due to pay scale adjustments. That’s a lot of additional buying power.

And as an added bonus, paying a living wage to hard-working Americans might ameliorate some of the rage and resentment currently fueling our toxic politics.

Just a thought.

Sheila Suess Kennedy teaches law and public policy in the School of Public and Environmental Affairs at Indiana University Purdue University at Indianapolis. Her scholarly publications include eight books and numerous law review and journal articles. Kennedy, a frequent lecturer, public speaker, and contributor to popular periodicals, also writes a column for the Indianapolis Business Journal. She blogs at www.sheilakennedy.net.

Topics
Inequality,
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