Paul Ryan’s anti-poverty plan should support minimum-wage hike, but don’t count on it

If Paul Ryan (R-Wis.) wanted to make headlines, his long-awaited plan to reduce poverty, scheduled to be released at a July 24 event at the American Enterprise Institute, would include support for a minimum-wage increase. But given his longstanding opposition to the notion, don’t expect the House Budget Committee chairman to have a change of heart, despite the particular significance of the date. Five years ago — July 24, 2009 — was the last time the minimum wage was increased. Since then, it has declined by more than 71 cents per hour in inflation-adjusted terms — an amount that may seem small, but adds up to nearly $1,500 a year for someone working full-time at the minimum.

This is unfortunate because it is hard to imagine that Ryan’s plan will include anything with the immediate poverty-reducing and mobility-boosting punch of the substantial increase in the minimum wage supported by President Obama and the vast majority of the American public, including most Republican voters.

{mosads}The economic fact that increasing the minimum wage reduces poverty is now indisputable. Increasing the federal minimum wage to $10.10 an hour would mean a nearly $6,000 increase in gross earnings for someone working full-time at the current minimum wage. According to the nonpartisan Congressional Budget Office, if the minimum wage were increased to $10.10 an hour by mid-2016, it would immediately lift about 900,000 workers out of poverty. Overall, the incomes of workers currently living in poverty would increase by $5 billion annually.

Important new research by one of the leading minimum-wage experts, economist Arindrajit Dube, suggests the actual reductions in poverty could be even higher. Dube used individual-level data from the last 23 years to estimate the extent to which minimum-wage increases reduced poverty. Dube’s estimates suggest that raising the minimum wage to $10.10 an hour with annual inflation increases could reduce the number of people living in poverty by about 4.6 million in the short term and 6.8 million over the longer term.

Dube also reviewed 12 key academic studies of the effects of the minimum wage, including ones by minimum-wage skeptics, and found that all but one pointed to substantial poverty-reducing effects of a minimum-wage increase. And the one study that didn’t find a positive effect relied on a problematic and unconventional methodology.

Some opponents of the minimum wage argue that it isn’t narrowly targeted just to the poorest of the poor. They’re correct that many workers in both the working class and middle class benefit from an increase, but this is a feature, not a bug. Overall, more than half of the workers who benefit from a minimum-wage increase live in families with incomes that fall below the income ($55,000 for a family of four) that Americans on average think is necessary to be out of poverty and securely in the middle class. Yes, our official poverty measure suggests that a family of four needs only about $24,000 to be out of poverty today, but that’s because it hasn’t been modernized since it was officially adopted by President Nixon in the early 1970s.

In short, the minimum wage matters because it helps not only so many workers who are officially counted as poor, but also an even larger group of working-class Americans who are struggling to work their way into the middle class.

So why won’t Ryan call for an increase in the minimum wage? He’s argued that it would reduce the jobs available to workers. The CBO’s estimates do suggest that there could be some negative effect on employment — the main estimate suggests about 500,000 fewer jobs. But there is also a solid body of recent research suggesting zero negative impact on employment, a fact CBO acknowledges.

And even if we assume CBO’s estimate is on target, it needs to be put in the context of the much larger income gains that many more poorly compensated workers will see. As my colleague at the Center for Economic and Policy Research, economist John Schmitt, puts it: “Workers looking for jobs at the new, higher minimum wage may be looking in a slightly smaller job pool, for a slightly longer period of time. But, when they find a job, it will pay substantially more than the job they would have found somewhat more quickly at the old, but lower minimum wage.”

There are two final — and conservative — reasons that an increase in the minimum wage belongs in Ryan’s poverty plan.

First, higher wages mean savings on benefits such as food stamps and Medicaid. In a recent report for the Center on American Progress, Rachel West and Michael Reich estimate that a $10.10 minimum wage could reduce federal spending on food stamps by nearly $4.6 billion a year. That’s money that could be reinvested to bolster underfunded supports for poorly compensated workers and programs to reemploy long-term unemployed workers.

Second, living wages are consistent with what Ryan himself calls the “American idea” of “self-government” and a “a society where every person can work hard, achieve success, and advance in life.” This isn’t all that different than the argument President Franklin Delano Roosevelt made in 1937 when he first proposed a federal minimum wage. As he said then, “Our problem is to work out in practice those labor standards which will permit the maximum but prudent employment of our human resources to bring within the reach of the average man and woman a maximum of goods and of services conducive to the fulfillment of the promise of American life.”

Ultimately, raising the minimum wage is a values issue. In FDR’s words, it’s about ensuring a “fair day’s pay for a fair day’s work.” Now that’s a great American idea.

Fremstad is senior research associate at the Center for Economic and Policy Research in Washington and a Public Voices Fellow of The OpEd Project.