The Politics

On Wednesday, presidential hopeful Mitt Romney confirmed to the Associated Press his support for raising increasing the federal minimum wage automatically each year to keep up with the rising cost of living. (It’s currently fixed at $7.25 an hour, or about $15,000 a year for a full-time worker.) Newt Gingrich, now the GOP’s 2nd leading aspirant for the nation’s highest office, blasted that position on Meet the Press the following Sunday.

Romney’s position looks moderate – until you look at the stats. Tying today’s minimum wage to inflation would effectively pin a family of three under the poverty level. It’s just too little, too late. Regardless, the eventual Republican nominee will face a tough go on the issue against President Obama, who in 2008 endorsed raising the minimum wage to $9.50 in 2011 and then indexing it to inflation. (There’s still room for an even better rule: if the federal minimum had been indexed to the Consumer Price Index in 1968, it would be more than $10.30 today.)

Locally, Washington’s best-in-the-nation minimum wage was a big issue in the 2008 race for governor. In 2010, backed by a legal opinion issued by state AG Rob McKenna, it was the subject of an unsuccessful lawsuit by business groups seeking to block a 12-cent minimum-wage increase. But so far in 2012, neither McKenna nor Rep. Jay Inslee have had much to say on the issue – save for Inslee tweeting his approval of opposition to three Republican bills in the Washington legislature that proposed weakening the state’s minimum wage.

The Policy

The political debate centers on whether the minimum wage is good for jobs – which is an odd question for two reasons: 1) you’d be hard pressed to find any worker earning minimum wage now who thinks a pay cut will make their job better, and 2) in study after study, there’s no debate at all: higher minimum wages boost incomes without reducing employment or slowing job creation.

That’s true even for teens, who make up less than a quarter of low-wage workers directly affected by the minimum wage – but are often the poster children for proponents of a minimum wage cut. Today’s high teen unemployment is driven by the aftermath of the Great Recession and macroeconomic trends shaping the labor market, not by the minimum wage.

This and other research published over the past twenty years has largely discredited the studies generally relied on by those who support minimum wage cuts. Those studies failed to control for basic differences in population and job growth trends across regions of the country, like population migration from the Rust Belt to the Sun Belt. Control for that – by focusing on neighboring counties, which by their nature have similar economies) with different minimum wage rates – and any correlation between higher minimum wages and slower job growth vanishes.

Is Momentum Shifting?

It’s possible we’re watching a minimum wage increase move into the playoffs, if not the big game (a substantial federal increase plus indexing to inflation) quite yet.

Last Monday New York Assembly Speaker Sheldon Silver introduced a bill raise the state minimum wage to from $7.25 to $8.50 and then index it to inflation. Tuesday, Connecticut House Speaker Chris Donovan introduced a bill to raise the Connecticut minimum wage from $8.25 to $9.75 and then index it to inflation.  New Jersey Speaker Sheila Oliver is pushing legislation to raise the minimum wage to $8.50 and index it to inflation. Last week the Delaware Senate passed legislation to raise their state minimum wage from $7.25 to $8.25.

Similar proposals are already pending in Illinois, Massachusetts, Hawaii and California. Community members in Missouri and San Jose, California are gathering signatures to put measures to increase the minimum wage on the ballot in November. Eighteen states and the District of Columbia have raised their minimum wages higher than the federal level of $7.25 per hour.  Ten states have enacted measures to annually adjust their minimum wage to keep pace with the rising cost of living.

When you earn minimum wage, this is a serious pay cut.

Despite sound economic research showing that good base wages have positive effects on businesses, workers and the economy, attacks on Washington’s minimum wage surface year after year – 2012 was no exception.

On January 31, the House Labor and Workforce Development Committee heard testimony on several bills that would cut the paychecks of Washington’s lowest-wage workers. Representative Condotta, who introduced the bills, noted that he doesn’t have empirical evidence to support them but rather, “on the ground” experience: “We can talk about theories and we can listen to all the think tanks talk about what they have to say – I’m on the ground.”

It’s not a big surprise to see minimum wage detractors fail to acknowledge research that undermines their arguments. But it is frustrating to see them ignore the real “on the ground” struggles of people trying to get by on the minimum wage – like the people who came forward to share their stories at Tuesday’s hearing:

• A single mom of two children testified, “it is nearly impossible to make ends meet on minimum wage. I felt like I was constantly running and never getting ahead…I ended up losing my apartment. We have been living in homelessness and transitional shelters ever since.”

• A server from Sea-Tac Airport said, “we [restaurant employees] work so hard, so tirelessly. After I’ve paid for my tip allocations, for my taxes, my medical insurance and my union dues, I am literally walking home with $60 every two weeks. That is my paycheck. These workers need more. We don’t need less.”

• A hotel worker shared, “I don’t know anyone working for minimum wage, receiving gratuities or not, that’s not struggling to pay their mortgages, their medical bills, put food on their tables. No one I know could tolerate a significant wage cut without suffering.”

• A server and bartender in Centralia explained how a $1.79 reduction in minimum wage would affect his household budget: “It would take away 3 months worth of my mortgage payments, hinder my ability to pay my insurance and my wife’s medical bills. Every day that I go to work is a gamble of how much money I’ll make. One thing that I’ve always been able to depend on is my base hourly rate. My tips are not a guarantee. It is up to my employer to pay my base wages.”

Not a single person who actually works a minimum wage job testified in support of Rep. Condotta’s bills. A representative from SEIU 775 summed up the comments of those in opposition to the bills this way: “Some may claim these bills are reforms aimed at helping our state’s ailing economy. They are, in fact, an attack on the lowest paid workers in our state that will damage our economic recovery.”

Washington’s strong minimum wage ensures some low-wage workers can keep themselves out of poverty with full-time work. But many others are offered only part-time hours, or have to support a family with their earnings. Here’s some recent research about the minimum wage:

• In response to an Illinois bill that would incrementally increase the minimum wage to $10.65 by 2014, the Economic Policy Institute  summarized economic research on the effect of minimum wage on workers, businesses and the economy.

• The Economic Opportunity Institute published an economic analysis of Washington’s minimum wage earlier this year.

Taking the High Road: A How-to Guide for Successful Restaurant Employers

A new report from Cornell University and Restaurant Opportunities Center United highlights examples of restaurateurs across the country who have created “win-win-win” solutions for workers, diners, and employers by using “high-road” employment practices.

Nationally, restaurant workers typically earn very low wages; 90% do not receive paid sick days, paid vacation, or health insurance through their employer either. The Cornell/ROC report highlights just how much those policies cost employers: between $4,000 and $14,000 per employee turnover. Costs include recruitment and screening, training, uniforms, admin, and unemployment insurance — as well as negative impacts on team morale, trust building, and relationships with regular customers.

The alternative is “high road employment”, which employers in this report define as practices that support workers and unleash their loyalty, creativity, and productivity to make the restaurant successful. Those practices include livable wages, a healthy workplace through paid sick days, vacation, or health insurance; and career ladders for employees through training and internal promotions policies.

Several prominent local restaurant owners were part of the campaign for a paid sick days ordinance in Seattle, citing the positive effects paid sick days have on the bottom line by improving morale, reducing turnover and reducing the spread of illness. The high-road employers interviewed for this study also reported that the benefits of increased productivity and reduced cost of employee turnover outweigh short-term costs of improving workplace practices. Summary | Full report

Rep. Cary Condotta

In yesterday’s “Labor and Workforce Development Committee“ Washington’s best-in-the-nation minimum wage was under attack yet again.

The latest offensive came in the form of three bills, introduced by Rep. Cary Condotta, which would:

1. reduce the minimum wage for tipped workers,
2. lower automatic cost-of-living adjustments (COLA) that track inflation, and
3. suspend the minimum wage COLA when unemployment is above 7.5%.

Rep. Condotta, for his part, argues in favor of the bills because “the cost of labor is driving [restaurants] out of business.” His evidence to back up this statement, as he points out, is not empirical, but rather “on the ground” experience: “We can talk about theories and we can listen to all the think tanks talk about what they have to say – I’m on the ground,” said Rep. Condotta at the hearings.

Perhaps Rep. Condotta doesn’t rely on the empirical evidence because it doesn’t support his theory. Recent research proves there is no significant impact on employment numbers resulting from minimum wage increases.

In addition, Rep. Condotta’s statement that the cost of labor is driving restaurants out of business is inaccurate. The cost of labor – the minimum wage – is stable and rises with inflation. But commodity costs such as dairy, coffee and food have far outpaced inflation, and Rep. Condotta himself points out “restaurants are facing a 9% increase in food costs.” Certainly increased costs are cutting into employers bottom lines, but they’re cutting into everyone else’s too!

See, it’s not just business owners who are paying higher costs for bread, milk and butter – so is everyone else. Rising commodity prices – which are borne by everyone – should not be used as a surrogate for cutting the minimum wage, especially when costs for food, health care and gas are rising. That’s poor economic theory, and a recipe for more economic insecurity for working people.

Those who argue for a reduction in the minimum wage would do well to remember that employees are customers, too. Nearly every dollar of the minimum wage is pumped back into the economy because few workers can afford to save – creating a multiplier effect that ripples throughout the local economy. When the minimum wage is cut, economic activity also decreases.

People earning minimum wage don’t have wiggle room in their finances - their proverbial “belts” have already been tightened. Cutting the wages of the people struggling to get by will only hurt our economy, and likely lead to more working people utilizing government assistance to make ends meet.

Jamie Vaughn, owner of Revival Lighting in Spokane

Business experience, academic research and political muscle are backing calls by small business owners for “high road” business and economic development policies – and policymakers are listening.

The recent campaign for paid sick days in Seattle featured local business leaders like Dave Meinert, Makini Howell and Jody Hall. And they didn’t just support the idea – they helped craft the proposal that eventually became law. As Howell put it in an open letter to business owners:

“Not only can paid sick days work for my business, I believe it is exactly the type of public policy that makes our community stronger. Ultimately, strong businesses need strong communities to thrive.”

Before you write that off as the “Seattle liberal establishment” at work, take a look at this article from the Spokane Inlander about Revival Lighting owner Janine Vaughn, who:

showed up as a simple small business owner in Inlander stories about income-tax Initiative 1098 (arguing it would save her small business money) and workers-comp insurance-privatization Initiative 1082 (arguing it would cost her small business money).

Vaughn is a member of the small business lobbying group Main Street Alliance, which initially formed to support the small-business friendly aspects of proposed national health care reform legislation.

The Main Street Alliance, Vaughn explains, is made up of mostly smaller businesses. That’s why they tend to stand in such stark contrast to traditional business lobbying groups – and the Republican agenda.

That kind of contrast gets noticed. The White House has been in touch to get the Alliance’s views on public policy issues that affect small businesses and their employees:

“It’s actually very surprising,” Vaughn says about her sudden ubiquity in the press. “They’re actually listening to the small business voice. It’s exciting.”

Academic research backs up these business owners’ experience with “high road” economic development policies like a strong minimum wage, paid sick days, and paid family leave.

• The latest research by economists comparing counties that share borders across state lines has found that increasing the minimum wage not only increases the incomes of low wage workers, it does so without decreasing the number of jobs. And it benefits employers by decreasing costly turnover.

• Since New Jersey’s paid family leave policy was implemented in 2009, and researchers at Rutgers have found paid leave is not only good for families, it’s better for businesses and leads to reduced use of public assistance.

• A study in the American Journal of Public Health demonstrates how a lack of workplace policies such as paid sick leave contributes significantly to illness among Hispanics — and thus the general population.

This is a welcome and exciting trend – one that bodes well for Washington’s (and America’s) businesses, families and communities as we strive to restore the promise of the middle class and build an economy that works for everyone in the years to come.

Nine other states (AZ, CO, FL, MO, MT, NV, OH, OR, VT) followed suit, and more recently, some (at first blush) surprising advocates for stronger minimum wage laws have emerged. Among them: Republican presidential candidate Mitt Romney and New York Mayor Michael Bloomberg (Independent), who advocate indexing the federal minimum wage to inflation and increasing the minimum wage, respectively. (President Obama previously endorsed raising the federal minimum wage to $9.50, then indexing it based on the Consumer Price Index.)

Given that context, it’s more than a little surprising to see a group of Washington legislators file three different bills this year, each aimed at undercutting Washington state’s best-in-the-nation minimum wage in some fashion:

• The first would use a more obscure measure of inflation to reduce cost-of-living adjustments;
• The second would penalize employees who earn tips by lowering their minimum wage; and
• The third would outright prohibit a cost-of-living adjustment to the minimum wage when people need it most – when the economy takes a downturn.

What gives? There is no good public policy reason to give a pay cut to tens of thousands of working people trying to make ends meet on a meager hourly wage, especially when Washington state’s long experience makes it clear that a strong minimum wage law protects paychecks and boosts our local economies.

The measures are unlikely to be any too popular with voters, either. In fact, it is *increasing* the minimum wage that draws support from all income groups and political parties – including majorities of independent voters and Republicans. Recent polling found that two-thirds of Americans – a bipartisan majority – support raising the minimum wage to $10 and then indexing it to inflation to keep up with the rising cost of living.

Here’s one possible reason for the bills: The American Legislative Exchange Council (ALEC) has long sought to overturn state minimum wage laws, and even provides model legislation for state lawmakers to use for that end. And according to SourceWatch, of the eight legislators sponsoring one or more of the three bills in Washington, four have close ties to ALEC:

• Rep. Jan Angel (R-26), ALEC State Chairman and Commerce, Insurance and Economic Development Task Force Member
• Rep. Gary C. Alexander (R-20), ALEC Tax and Fiscal Policy Task Force Member
• Rep. Charles R. Ross (R-14), ALEC Public Safety and Elections Task Force Member
• Rep. Matt Shea (R-4), ALEC Civil Justice Task Force Member

To be sure, correlation does not equal causation here. But it is certainly a compelling set of connections.

Now is not the time for Washington state to scale back on providing a decent living wage.

You probably heard this one before: Having a job is the new raise.

True enough. In this desultory economy, few workers are likely to barge into the boss’s office demanding a raise and a company car. They’re just happy to have a boss. But some jobholders in Washington state actually got a sweet pay hike this month. On January 1, the state’s minimum wage went from $8.67 an hour to $9.04 an hour—the highest minimum wage among the 50 states.

Woo-hoo! For minimum-wage earners lucky enough to work a 40-hour schedule, that pencils out to an extra 15 bucks a week. Those keeping score at home will note that this latest increase takes the annual gross for a minimum-wage worker in Washington from $18,033 to $18,803 a year. A family of three is officially “poor” in this country if its income is $18,530 or less, so one way to look at the 37-cent pay raise is that it lifted at least some people out of “official” poverty and into, well, the outskirts of poverty.

As ridiculous as it sounds, that’s something to be proud of. Elsewhere in this issue, an academician suggests that forgoing this year’s increase in the minimum wage might create more jobs and help jump-start the economy. He may be right, but do we really need to rescue the economy on the backs of those who can least afford to carry out the offensive?

Read more from the Seattle Business Magazine: Keep the Minimum Wage High »

For America’s economy to function well over the long run, wages have to keep up – at the very least – with the cost of living. But inflation isn’t the only way to measure how well wages are keeping up with the economy, according to Salvatore Babones:

…the Social Security Administration uses something called the Average Wage Index (AWI)…[which is] an index of the average wages paid in any given year…[because] the CPI adjusts for changes in the cost of living, but doesn’t adjust for changes in quality of life. Simply put, we expect people to live better in 2012 than they did in 1974.

Adjusted for wage growth using the Average Wage Index (AWI) [the federal minimum wage] would be $10.74.

That said, even wage growth doesn’t tell the whole story, because wages have not kept pace with rising economic prosperity in America. Here’s Babones again:

Since the 1970s ordinary workers’ wages have failed to rise along with the economy as a whole. The massive rise in non-wage income (dividends, interest, and capital gains) has made workers’ wages a smaller and smaller slice of the overall pie. America’s total personal income per capita – including income from all sources – has risen much faster than the Social Security AWI.

Between 1974 and 2011 the AWI rose a cumulative 17 percent (adjusted for inflation). Per capita personal income (PPI), on the other hand, rose 57 percent (adjusted for inflation). Had the minimum wage been indexed to PPI growth starting in 1974, the minimum wage today would be $14.41 an hour. That’s a far cry from $7.25.

And finally, to put this in international perspective, Babones calculates that based on average exchange rates for the three year period 2009-2011:

In Canada, the minimum wage is between USD $8.59 and $10.50. In the United Kingdom, the minimum wage is about USD $9.56. In France, it’s about USD $12.44. In Australia, the statutory minimum is about USD $14.20, but very few workers earn so little. The standard wage for fast food and other service jobs is…about USD $15.59.

*Note: Eighteen U.S. states have a minimum wage set higher than the federal standard.

Nationally, median weekly earnings for women working full-time year-round were $669 in 2010, or 81% of men’s median weekly earnings. Similarly, women at the median earn about 83% of men in hourly wages. In Washington, that ratio falls to 76% — with a gender wage gap of $5.04 versus $2.94 for the nation.[1]

Why the bigger gap in Washington? Washington has higher median wages than many other states (and the U.S. overall) thanks to a concentration of high-wage industries including aerospace and software. However, these industries employ a predominately male workforce – so not only do men earn more in Washington, more men earn more here.

At the other end of the spectrum is the concentration of women in low-wage occupations. The January 1, 2012 minimum wage increase to $9.04 will directly impact 194,000 workers in Washington – 58% of whom are women.[2] In the U.S., 2.7 million working women (and 1.6 million working men) earned wages equal to or less than the prevailing minimum wage in 2010.

Women don’t earn less for lack of education. Nationally, women are more likely to be enrolled in college – 74% of female high school graduates enrolled in college in 2010, compared with 63% of male graduates. The trend is the same for Washington’s high school grads. Across the country, women are also more likely to graduate from college. Now, 36% of working women in the U.S. have college degrees, compared with 28% of their male counterparts.

So, the question remains – why the earnings gap? The National Partnership for Women and Families (NPWF) found that workplace discrimination against women has actually been on the rise in recent years – and not just pay inequality.  NPWF also found that women experience obstacles to raises and workplace advancement. These barriers are likely factors in why women are concentrated in low-wage sectors, despite being more likely to hold a college degree.

So why do women in Washington have a higher median hourly wage than the U.S. as a whole? Two reasons: 1) women in Washington tend to earn more than women in other parts of the country, and 2) the state’s high minimum wage disproportionately benefits women. Yet, we also have wider gaps in earnings compared with the U.S., and men out-earn women in every industry, even those dominated by women.

So unless we’re reserving gender equality for generations to come, it’s about time to put a little more effort into developing labor standards and workplace policies that offer equitable pay, opportunities for raises and advancement and access to workplace benefits. These efforts will no doubt benefit all Washingtonians.

Employees say raise eaten up by higher costs for fuel, food; employers say it forces them to cut back on hours.

PHOTO: Andy Sawyer/Yakima Herald-Republic

Cesar Covarrubias has been paying about $5 to $10 more for his groceries lately.

As a result, Covarrubias, 20, sees a lot less of the $10 he earns per hour working at A & S Gifts, a retail kiosk at the Valley Mall.

He’s expecting a bit of a raise with an increase in the state minimum wage, which went up by 37 cents to $9.04 today.

The new wage reflects a 4.23 percent increase from August 2010 in the Consumer Price Index, which measures the average change in prices over time of goods and services.

But with day-to-day expenses rising faster than expected, workers like Covarrubias will still have a hard time keeping up.

“Whether we like it or not, prices are going to be increasing,” Covarrubias said.

Washington has been adjusting the minimum wage for inflation since voters — including those in Yakima County — approved Initiative 688 in 1998. Today, 10 states have similar laws, including neighboring Oregon, where the minimum will go to $8.80.

Washington has had the highest minimum wage in the nation for many years, but the city of San Francisco now holds that rank with a wage of $10.24.

This state’s minimum wage applies to workers in all industries, including agriculture, although 14 and 15 year olds may be paid 85 percent of the adult minimum wage, or $7.68 an hour.

While the concept of keeping wages in line with inflation looks good on paper, the increase doesn’t always keep up with the rising cost of basic expenses.

“A lot of people see their household expenses going up far faster than headline inflation,” said Greg McBride, senior financial analyst for Bankrate.com, a personal finance website.

For example:

• Monthly rent in Yakima County in September increased year-over-year by 7.2 percent, according to the Washington Center for Real Estate Research at Washington State University.
• Clothing, according to data from the U.S. Bureau of Labor Statistics, increased nationwide by 4.8 percent since November 2010.
• Prices for economy domestic flights are expected to increase by 5 percent in 2012, according to American Express.
• Unleaded regular gas in the Yakima area averaged at $3.37 a gallon, according to AAA. While lower than prices in the past month, it was still 16 cents, or 5.1 percent, more than the price a year ago.

Despite its shortcomings, the minimum-wage law is a big improvement over how the minimum wage was determined before the initiative was passed, said Marilyn Watkins, policy director at the Economic Opportunity Institute, a left-leaning Seattle-based policy center, which supports ongoing minimum wage increases.

At one time, the state minimum wage would be stagnant for years, making things unpredictable for workers and their employers. “With little predictable increases from year to year (now), it makes it easier to plan,” Watkins said.

Read more from the Yakima Herald »