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Raising the Minimum Wage for Working Men and Women in California and the Rest of America

What a Higher Minimum Wage Does for Workers and the Economy

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Tom Wolfe himself couldn’t have imagined a better New York juxtaposition. Pizza, Pepsi, and hot chicken wings were out on the table one November evening at Strive New York, an agency in East Harlem that helps ex-convicts and other chronically unemployed people get and keep jobs. Luz Droz, 32, who has a 10-month-old son, explained that she was trying to turn things around after “a little situation in my life,” which turned out to be two prison sentences totaling eight years for dealing drugs and passing bad checks. She detests being on welfare but was turned down recently for a minimum-wage job at Burlington Coat Factory (BURL). “I thought I was going to get it,” she said. “Once I get a job, I’m off to the races.”

The same evening, one stop south on the 4 express subway line, waiters were serving hors d’oeuvres of tuna tartare and basil-slathered shrimp in the Upper East Side apartment of billionaire George Soros. The guest of honor was Soros’s fellow billionaire David Sainsbury, the former chairman of the family-founded British supermarket chain J Sainsbury (SBRY:LN). He has a new book, Progressive Capitalism. Sainsbury will probably never meet Luz Droz, but he, too, had minimum-wage employment on his mind. To compete with China, he said, “the West must race to the top” and not try to “screw down the wages.”

The down-on-her-luck mom who can’t land a job at minimum pay and the billionaire who can’t imagine paying so little are two voices in a global debate over not only the minimum wage, but also the bigger challenge of helping the least fortunate members of society. The federal minimum wage is $7.25 an hour. President Obama called for a $9 federal minimum by 2015 in his State of the Union address in February and then this fall endorsed a more ambitious bill, which is stuck in House and Senate committees, to raise it to $10.10 by 2015. California, New York, Connecticut, Rhode Island, and New Jersey voted to raise state minimums this year. Last August fast-food workers in almost 60 cities struck or walked out in a bid for starting pay of $15 an hour. In recent weeks two of the nation’s largest private employers, Wal-Mart Stores (WMT) and McDonald’s (MCD), have taken heat for paying many of their workers so little that they need government benefits and charity to get by.

Raising the minimum wage is neither as wonderful as its advocates claim nor as dangerous as its detractors warn. On the upside, it would increase pay for millions of Americans, not only those earning the minimum but also those at fixed increments above it. These are people who could really use a raise. Contrary to what generations of students were taught in freshman econ, new research finds that minimum-wage increases at the state level have caused little, if any, harm to employment. “Outside of the simple Econ 101-type environment, increasing workers’ pay can improve the functioning of the low-wage labor market,” Arindrajit Dube, a University of Massachusetts economist, testified before Congress in March.

• Tags: Peter Coy, Susan Berfield