A Pay Hike for the Poor

By Richard Lacayo

In the 1980s the minimum wage has really lived up to its name. Since it was last raised to $3.35 an hour in 1981, inflation has eroded its purchasing power by 27%. Meanwhile, the Reagan era became famous for skyrocketing maximum wages as greed became fashionable throughout the land. Frustrated by Congress's repeated failures to improve the national standard for the lowest- paid employees, eleven states set higher minimums of their own. Even fast- food chains often find themselves bidding $6 an hour and up for workers who scoff at the minimum wage as "chump change."

Last week the White House joined with congressional Democrats to give a raise to those at the bottom of the scale. Starting next April, the lowest- paid workers will receive $3.80 an hour, to be followed by a raise to $4.25 a year later. That represents a concession by the President, who wanted the increase phased in over three years. But congressional Democrats also gave ground by agreeing to an idea they had fiercely resisted in the past, a so- called training wage for teenage workers. The training wage, which can be paid to a worker only during his first six months on the job, will be $3.23, rising to $3.61 in 1991.

Congressional Democrats and their labor allies had repeatedly been thwarted in their attempts to legislate a higher minimum. Just last June, Bush vetoed an increase to $4.55 an hour. He was responding to arguments from business that a higher minimum would force 200,000 workers to lose their jobs. The logjam broke two weeks ago, however, when AFL-CIO President Lane Kirkland suggested a compromise plan to the White House.

& House Republicans suggested that Bush take Kirkland's proposals seriously. Fighting the hike had become embarrassing for Republican lawmakers since they had energetically backed a cut in the capital gains tax that would mainly benefit wealthy investors. They warned that another veto might be overridden. "We don't need to be known as the party that squeezed the last penny out of the minimum wage," said Senate Majority Leader Robert Dole. After the Administration signaled its agreement, the measure passed the House by a vote of 382 to 37. Quick approval is expected in the Senate, and the President could sign the bill by Thanksgiving.

But what will the higher minimum wage really mean to the working poor? Though economists are skeptical about business's claims that the increase will lead to large numbers of lost jobs, they also question whether it will do much to improve the lot of low-wage workers. Only about 4 million of the nation's 60 million hourly workers make the minimum wage or less, about 40% of them teenagers. The $6,968 earned annually by a full-time minimum-wage employee is $2,467 less than the federal poverty line for a family of three. Even when the new raise goes fully into effect, such employees will earn only $8,840 a year. But only a handful of minimum-wage earners are the sole supports of their families. Moreover, many live in households that receive such Government assistance as food stamps, rent subsidies and Medicaid.

To a Congress hemmed in by the budget deficit, a higher minimum wage is appealing because it appears to bolster the take-home pay of poor workers while simultaneously allowing a reduction in Government assistance payments, which decrease as the incomes of recipients rise. Unfortunately, there is a catch: precisely because they may earn just enough more to lose their Government benefits, the lowest-paid workers could actually suffer a setback in their standard of living. "What worries me is that people will say, 'Well, we've done our thing for the poor this year,' " says University of Michigan Economics Professor Charles Brown, a specialist on the minimum wage. "The minimum wage shouldn't displace other serious work on poverty."

Such misgivings have convinced many experts that other measures are needed to uplift the working poor. Both the House and Senate are considering an expansion of the earned-income tax credit, under which the Government provides a sliding scale of rebates to low-paid workers with children. Expanding the credit would allow such employees not only to pocket more of what they earn but also to retain their Government benefits. Though larger credits would cost the Government up to $5.9 billion annually, it seems a price worth paying.

With reporting by Hays Gorey/Washington and Theodore P. Roth/Chicago