The Incredible Shrinking Paycheck

By Christine Gorman

Some things grow better with age, but the minimum wage is not one of them. For seven years it has languished at $3.35 an hour, and the purchasing power it provides, ravaged by inflation, has dropped steadily: in 1975 dollars, it is worth only $1.55. A breadwinner earning $3.35 an hour would have to work 52 hours a week every week just to clear the $9,044 official poverty level for a family of three.

That situation has outraged labor leaders, who have pressured Congress into considering a major revision of the minimum-wage law. Similar bills, introduced in the Senate by Massachusetts Democrat Edward Kennedy and in the House by California Democrat Augustus Hawkins, would increase the base pay of American workers to $4.55 by 1991 and then automatically peg it to 50% of the national average wage (currently $9.28). The Democratic Party platform adopted in Atlanta last week calls for a minimum that rises automatically with inflation. But lawmakers have bogged down in a debate over whether the move would help or hurt its intended beneficiaries -- the working poor.

Business groups contend that the increased labor costs from any hike jeopardize hundreds of thousands of jobs. Union leaders counter that such claims are exaggerated. Economists are of no help in resolving the dispute. Beryl Sprinkel, chairman of the Council of Economic Advisers, says a $4.65 base rate would eliminate 600,000 jobs, cost consumers $13 billion more a year and add $2 billion to the deficit. The Congressional Budget Office has projected that 500,000 jobs would be lost. But Economist F. Gerard Adams of the University of Pennsylvania argues that a higher minimum wage would cost no more than 100,000 jobs by 1990. Reason: most unskilled workers would be able to find jobs because of current labor shortages.

Another point of contention is that many minimum-wage earners come from middle-class homes and are working for pocket change. According to the Bureau of Labor Statistics, there are 4.7 million minimum wagers. Heads of households represent less than 25% of the total, and teenagers 37%. Says William Dunkelberg, dean of the School of Business Administration at Temple University in Philadelphia: "There are better ways to help the poor than with the shotgun approach of a minimum wage."

Moreover, there are not so many low-wage jobs as there used to be. In today's postindustrial economy, the majority of positions require more education and skill than ever before. As a result, the number of minimum-wage earners has dropped from 12.8% of all hourly workers in 1981 to 7.9% in 1987. Yet these jobs represent stepping-stones for many people trying to climb out of the economic underclass. A hike in the minimum wage, many economists point out, would eliminate opportunities for people who are less well educated or just entering the job market. Low-paying training jobs that provide work experience and employment skills will be the first to go, contends Marvin Kosters, director of economic policy studies for the American Enterprise Institute. Says he: "Increasing the minimum wage hurts those workers who can least afford it."

Backers of an increase maintain that it is good social policy. Already, they note, welfare payments for a mother and child in California, for example, amount to $6,348 a year, vs. $6,898 for someone working a 40-hour week at the national minimum wage. As the gap diminishes between what the working poor can earn from a job and receive on the dole, so does the incentive to work. Says Washington Mayor Marion Barry: "As it presently stands, the minimum wage is a message to millions of citizens that there is no escape from poverty -- even with full-time work."

In the face of such widely divergent points of view, an innovative compromise is gathering support in Congress. A better way to help the working poor, says Republican Congressman Thomas Petri of Wisconsin, would be a combination of a modest increase in the minimum wage with targeted tax credits. His proposal: hike the minimum wage to $4 by 1991 and expand the earned-income tax credit, a variable amount that poor working families are allowed to subtract from the tax they owe. The lower their income, the higher the credit. The current maximum for the credit is $874, but Petri suggests raising it to $2,500. The small increase in the minimum wage, he argues, is not likely to create unemployment problems, and the tax relief would help those with families. The result, says Petri: "We get people off welfare and pay them to work."

While debate continues on the federal level, eleven states and the District of Columbia have taken the unusual step of hiking the minimum wage on their own. On July 1, California became the latest to raise its scale, to $4.25 an hour, the highest in the U.S. Even Governor George Deukmejian, a conservative Republican, supported the move, saying that it was overdue.

If Congress fails to act, the national minimum wage could soon be close to worthless. "We have, in effect, allowed inflation rather than legislation to repeal the minimum wage," says Economist Harley Shaiken of the University of California at San Diego. But more and more politicians at all levels of government seem determined to put it back on the books by raising it substantially.

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Cynthia Davis

/ CAPTION: DRAGGED DOWN BY INFLATION

DESCRIPTION: Minimum wage in current dollars and in constant 1975 dollars, 1975-1988; color illustrations of Uncle Sam and worker with lunchpail.

With reporting by Jerome Cramer/Washington and Edwin M. Reingold/Los Angeles