Stagnating Wages, Rising Energy Prices and Growing Economic Uncertainty

This year's State of Working Pennsylvania is released at a time of growing uncertainty about the national economy.  Rising energy costs, indications that the housing market bubble may burst, and quickening inflation and interest rates have led some economic observers to anticipate a slowdown over the next few months.

In Pennsylvania, vulnerability to a slowdown, if it occurs, will be heightened by the fact that three years of economic recovery have brought only wage stagnation or decline for most workers.

This stagnation coupled with rising gas prices help explain the intensity of public reaction to the 16-34 percent pay increases enacted for members of the General Assembly in July.  This reaction has left the legislature searching for ways to demonstrate its concern for the average Pennsylvanian.

One of the actions under consideration is an increase in the state’s minimum wage from the current $5.15 per hour to $7.15 per hour.

Based on a review of the latest Pennsylvania labor market data and of research on the impact of raising the minimum wage, the State of Working Pennsylvania 2005 concludes that a state minimum wage increase should be implemented.  It also concludes that future erosions in the value of the Pennsylvania minimum wage should be protected against with an automatic annual cost-of-living increase.

A minimum wage increase would be consistent with the Pennsylvania value, expressed by many members of the General Assembly this year when they voted to raise their own pay (and also expressed in the mid-1990s when they established for themselves an automatic cost-of-living adjustment), that hard work be fairly rewarded.

The best available economic research, which evaluates the real-world effects of minimum wage increases, suggests that raising Pennsylvania’s minimum wage would not lead to significant job losses. 

Third, an increase in the minimum wage would strengthen the Commonwealth’s economy by encouraging companies to compete based on ingenuity and effective management rather than low wages. 

In sum, an increase would help create a more moral economy: an economy more consistent with Pennsylvania values and one that works well on economic terms.