Raising the minimum

After the intractable fight between Congress and the White House over tax cuts, the bipartisan agreement on raising the minimum wage comes as refreshing reminder that Washington still is able to split its differences and reach compromise.

Credit this breakthrough to a well-deserved triumph of economic reality over fuzzy economic theory, to a deep concern for the plight of the working poor. Credit, too, the 2000 elections.

The deal, backed by moderate Republicans and business-oriented Democrats, calls for an increase of $1.30 per hour, from the current $5.15 to $6.45, spread over four years and also includes several tax breaks and sweeteners for small business and the self-employed. The White House been pushing for a $1 hike over two years; GOP leadership had promised to block a vote on anything more than $1 over four years.

Enter a group of moderate Republicans who pointed out to leadership that they face re-election next year in districts with large numbers of working-class voters who know that an increase in the minimum wage tends to increase wages just above the minimum and who see the absurd explosion in executive salaries as refutation of the argument that pure market forces should determine what one is paid. GOP leadership’s philosophical objections to government tinkering in the marketplace appears to be crumbling in the face of this imminent threat to their narrow House majority. And, that of course, forced Democrats to accept less than they wanted lest they be portrayed as the anti-worker party.

Despite the element of political gamesmanship, this is a good proposal. It will restore the purchasing power of the 61-year-old minimum wage to its historic high of the mid-1970s. The added cost to employers, estimated at $16 billion over five years, will be more than offset by tax breaks for small business, which include a reduction in the unemployment tax surcharge, an expansion of a tax credit for job creation and increasing asset depreciation. The self-employed will get to deduct the full cost of health care and to increase their tax-free contributions to retirement accounts. Even the restaurant industry, long a bitter opponent of minimum-age hikes, gets an increase in the deductibility of business meals.

While the electoral cycle is a major contributor to this spirit of compromise, it also benefits from the facts. Opponents of the minimum wage argue that increases lead to layoffs, yet the two-step increase of 1996-97 was accompanied by unprecedented job growth. There is solid evidence that the feared inflationary pressures from rising wages come from middle-income earners and up, not from the low end. Although the objection persists that the minimum wage largely benefits affluent teens, the truth is that 72 percent of minimum wage workers are adults.

Finally, a growing number of small and medium employers are starting to see that paying minimum wage beyond a training period can be an expensive proposition; good pay and benefits increases worker loyalty and productivity; a modest, phased-in minimum-wage boost costs a lot less than the high turnover and endless recruitment and training that results from offering dead-end jobs. This minimum-wage bill is being given a high chance of success in Washington because it offers something for everyone. The accompanying political advantage is a small price pay.