MINIMUM WAGE, MINIMUM SENSE

By Michael Kramer

After 56 minutes of recycled campaign themes, Bill Clinton finally made some news during last week's State of the Union address: the minimum wage should climb, he said, because ``you can't make a living on $4.25 an hour.'' That's for sure--but as Clinton himself explained two years ago, hiking the minimum is ``the wrong way to raise the incomes of low-wage earners.''

First, some facts about the minimum wage and those who get it:

About 2.5 million Americans earn the minimum; 1.7 million more take home even less since the law doesn't cover them.

The minimum was first set at 25c an hour in 1938. Inflation has taken a heavy toll: since it was last raised from $3.35 in 1991, its value has fallen 50c.

Contrary to popular belief, about 80% of those who get the minimum (or less) belong to families with combined incomes above the poverty line (currently $15,627 for a family of four) and thus are not defined as poor.

Many economists worry about two pernicious effects of raising the minimum. The first concerns job loss. Standard theory holds that every hike in the wage triggers employee firings, with the least skilled axed first. That view has been challenged by several recent studies co-authored by Alan Krueger, the Labor Department's chief economist. A modest increase, says Krueger, would have ``negligible negative employment effects''--or, in plain English, next to no job losses. Negligible, though, is a term of art. Because wage- related costs like unemployment compensation and payroll taxes rise along with the basic wage, most experts say the contemplated hike to $5 an hour could cost between 40,000 and 100,000 jobs. ``The consensus view has big problems with Krueger's results and methodology,'' says Texas A&M labor economist Finis Welch. ``Alan ought to consider the old saw: If you drop an apple and it rises, question your experiment before concluding that the laws of gravity have been repealed.''

But ``even if Krueger's right and no one's fired,'' says University of Texas economist Daniel Hamermesh, ``a raise will deter employers from hiring new workers. That's bad especially for young minorities--over 30% of whom are unemployed--because they're the people we want in the labor force, so they can begin learning basic job skills.''

The other troubling question is, Who pays? ``Businesses don't simply absorb increased wage costs,'' says Rob Shapiro, whom Labor Secretary Robert Reich tried hard (and unsuccessfully) to enlist as a supporter of the raise because, as a top Clinton campaign adviser, it was Shapiro who once convinced Clinton that hiking the wage was counterproductive. ``They pass them on in the form of higher prices, which are regressive because they're borne equally by all. Thus the vast majority of the 39 million poor Americans who won't benefit from a raise will be worse off, while a very few get more pay.''

When Clinton agreed with this analysis more than two years ago, he urged enhancing the earned-income tax credit instead. ``It's better targeted to low-income people because it pays a supplement to everyone who earns up to 150% of the poverty line,'' Clinton told me in 1992. ``Those who work full time should be able to support a family above that line, which is what an expanded EITC can achieve.''

Since many Republicans oppose hiking the minimum with near religious zeal (``I'll fight it with every fiber of my being,'' says House majority leader Dick Armey), the President's plan seems dead--which may explain why some Clinton aides say the proposal won't be actively pushed.

What Clinton should fight for seems obvious: For openers, the President should further promote the EITC. Many Americans still don't know they qualify for it, and many of those who do get it don't realize they're also eligible for food stamps. Above all, Clinton should invest his dwindling political capital in an all-out drive for his job-retraining programs. Upgrading worker skills remains the surest route to increased incomes. As Clinton says, ``What you earn depends on what you learn; the most effective way to help is to make workers more productive because wages reflect the value of what people produce.''

Alluding to Krueger's work without naming him, the President said last week that the ``weight of the evidence is that a modest increase [in the minimum wage] does not cost jobs.'' That may be so, but Clinton's calculation was primarily political. ``We need the energized support of minorities and unionists, our core group of voters,'' says a Clinton adviser, ``especially if there's another three-way race in 1996.''

That view seems shortsighted for two reasons. First, the Democratic base alone won't re-elect Clinton, and the swing voters he most needs disdain old- fashioned liberal solutions like raising the minimum wage. Second, the President's real problem involves a perceived lack of resolution and stamina. If Clinton lets his proposed hike die quietly and holds instead to his original diagnoses and prescriptions (which were right then and are right now), he might come across more like a President than a perpetual candidate--and possibly get the four more years he covets.