Herald-Leader Editorial

Inequality smothering economic growth; Ky. should raise minimum wage

August 11, 2014 

Republicans in Congress and Kentucky's legislature who think increasing the minimum wage would do more harm than good should reconsider in light of new evidence.

The huge and growing gap between haves and have-nots is stifling economic growth, says none other than Standard & Poor's.

Boosting middle class purchasing power and lifting people from poverty is critical to strengthening the weak recovery, reports S&P, which has lowered its 10-year U.S. growth forecast from 2.8 percent to 2.5 percent in large part because of income inequality's stifling effects.

S&P is no left-leaning think tank but a credit ratings agency that runs one of the most famous stock market indices and is wholly committed to capitalism. Says S&P: "A rising tide lifts all boats ... but a lifeboat carrying a few, surrounded by many treading water, risks capsizing."

Kentucky state revenue grew 2.2 percent last month, up from last fiscal's year's anemic 1.1 percent, but still below economists' projections.

And no wonder. As Louisville economist Paul Coomes explained in a study for the Kentucky Chamber of Commerce, "Average pay per job continues to be an economic development challenge across Kentucky, with all nine regions posting slower growth than the United States."

While more urban parts of Kentucky are outpacing the national average in creating jobs, the new jobs do not pay well. Temporary agencies are the No. 1 fastest growth industry in Kentucky, which also is seeing strong growth in the food and beverage industry and in nursing homes, Coomes reported.

A minimum wage increase would put money into the pockets of workers in Kentucky's growing industries, which would stimulate the state's economy as a whole by keeping more of the fruits of Kentuckians' labor in Kentucky.

In this year's legislative session, the House approved a gradual increase in the $7.25 an hour minimum wage to $8.10 this year, $9.15 next year and $10.10 an hour in 2016.

The Republican Senate stopped it, saying a minimum wage increase would force employers who couldn't afford it to lay off workers.

However, the Center for Economic Policy and Research, a progressive think tank, found that in 12 of the 13 states that raised their minimum wage this year, employment was higher in the five months after the increase took effect than in the five months before workers were paid more. In nine of the 12 states employment gains after raising the minimum wage were above the national median.

That doesn't mean raising the minimum wage caused the employment gains, but it should allay worries that raising the wage would cost jobs.

Spending is critical to economic growth, but people can't spend what they don't have. Too many Kentuckians are working full-time (or even multiple jobs) and still have to go to payday lenders to make ends meet. This starves local and state economies of the spending they need to support new jobs and businesses and to make the investments in education and infrastructure that build a prosperous state.

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