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.

The bright spots:

• The aerospace industry added 11,500 jobs since May 2010, double the 6,000 lost during the recession.
• Jobs are beginning to return to the software industry, which added 1,800 jobs since December 2009 – but still shy of making up for the 2,500 software jobs lost during the recession.

The downside:

• The construction industry remains weak, and employment is flat.
• State and local government shed 1,300 jobs in November and December, adding to the 17,000 state and local government employee jobs lost between Feb 2010 and Sept 2011.

So overall, signs in the private sector seem to be trending positive – but it’s also clear public sector cuts are holding back the state’s recovery.

This point is not lost on Ezra Klein, who points out in the Washington Post that government layoffs are acting as a drag on our national economic recovery:

As Isaac Shapiro and Josh Bivens of the Economic Policy Institute have found, the rate of private-sector job growth during this recovery has actually been comparable to that after the 1990 and 2001 recessions. What makes the current recovery different is that, unlike after past recessions, the unemployment rate is getting battered by government layoffs this time around.

To rebound quickly and rebuild our state economy, Washington legislators need to stop the bleeding by making robust investments in our state infrastructure. Ending corporate tax breaks and maintaining investments of $2 billion in education, health care, and services would help do just that, and result in 9,000 to 17,000 additional private and public sector jobs.

Learn more: A Jobs and Economic Recovery Plan for Washington »

• Women who take paid leave are more likely to be working one year after a child’s birth than those who do not take leave. This means that employers who invest in their workers ultimately benefit from reduced turnover. Recruiting and hiring new employees is far more costly than keeping the ones you already have.

• Both women and men who take paid leave are significantly less likely to utilize public assistance programs than those who do not take leave. Food stamps and other public assistance programs are necessary to protect the most economically vulnerable. But it makes sense to invest in programs that prevent poverty, too. Putting systems in place to best support our workforce ultimately reduces the extraordinary fiscal and social costs of poverty – something that benefits all members of our communities.

As more women have entered the workforce and the population has aged, increased numbers of workers have found themselves in situations that require an extended absence from work – whether to care for a new baby, an aging parent or a sick spouse.

The 1993 federal Family Medical Leave Act, ensured up to 12 weeks of unpaid leave for workers to bond with a new child or care for sick family member. This legislation set an important workplace standard, but its reach is limited — extending only to companies with more than 50 employees and putting restrictions on which workers are able to access the benefit. And, of course, the leave is unpaid. While time to bond with a child or care for a family member is critical, the loss of income over an extended period of time is often impossible for families to manage.

To address the inadequacies of the federal policy, several states have crafted more extensive and inclusive policies to better meet the needs of working families. Currently, two states – California and New Jersey – have policies in place that offer family leave insurance as a component of their temporary disability insurance programs. Both offer up to six weeks of paid leave.

Washington, too, established a Family and Medical Leave Insurance Program in 2007 to provide workers with up to 5 weeks of paid leave. However, the program has not been funded, and implementation has been pushed to 2015. In the meantime, advocates from the Washington Family Leave Coalition have been working to improve the legislation (including an increase to 6 weeks of paid leave) and update the funding mechanism.

Until Washington and other states can establish good policies to address the needs of working families, many will continue to struggle for economic security. Paid family leave is an important workplace benefit that ultimately extends far beyond workers – promoting healthy business, families and communities.

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.

We’ve had a lot of talk about the privilege of the top 1 percent, and how they are grabbing more and more of our national income. Once, productivity increases were proportionally shared between corporations and workers. Now they’re mostly grabbed by companies and their top executives, while workers are left with decreased retirement savings, increased health-care costs and depressed wages.

This shift in prosperity and prospects didn’t just happen. It’s the result of conscious policy-making, including tax decreases for the wealthy, government policy that turns a blind eye to corporate union-busting, and “free trade” agreements that export jobs out of our country.

The result may appear to be manna from heaven for the wealthy, but that too is an illusion, because the wealthy need a civil society to prosper, too. They need good roads and a rail system to deliver materials to factories, and to distribute the products of these factories. They need fully functioning ports to export raw materials to factories they’ve established in China and import consumer goods to sell to Americans.

The wealthy need skilled workers for high tech and remaining industrial production — so they need good schools, community colleges and universities that are accessible to middle class students. And because workers don’t work so well when they — or their kids — are ill or injured or sick, the wealthy benefit from health coverage for the many.

Gated communities, private planes and private elite schools don’t fit the bill. The wealthy might think they can live in isolation and privilege, but the reality is, they can’t escape from the downsizing of the middle class. It hurts them too. 

Building the foundation for our economy costs money — schools, health coverage, roads, rail, public health. That’s taxes. But with total income shifting more and more to the top 1 percent, and away from the middle class, tax collections have fallen. The middle class spends most of its money — that generates sales, and sales taxes. The wealthy are more likely to invest in Wall Street, engage in financial manipulations with the latest derivatives, and enjoy trips to the Riviera. None of this generates tax revenues here in Washington.

So here’s an idea. It’s not novel or exciting, it simply makes common sense. Let’s tax the wealthy. They need a civil society and the fundamentals of government — education, health care, infrastructure — as much as the rest of us do, maybe more so. The 1 percent should pay too!

That’s the intent of a bill in the Legislature to levy a 2 percent marginal tax on incomes above $1 million. Senate Bill 6482 also establishes the paramount duty trust fund into which the proceeds from the tax are placed.

Paramount duty? That’s our state Constitution’s command that we provide basic education to all children. That’s something the wealthy should want, if not just for good citizenship, then at least for a supply of good workers. Over the past few years school districts in Arlington, Edmonds, Lake Stevens, Marysville, Snohomish, Shoreline, Sultan, Stanwood-Camano, Sultan, and South Whidbey joined with others around the state and the League of Women Voters, the PTA and the Washington Education Association in a lawsuit charging that the state is violating its paramount duty. In January the state Supreme Court found, using the Legislature’s own school improvement plan as a yardstick, that yes, the Legislature is indeed violating this paramount duty by underfunding basic education.

Yet the Legislature, in contemplating how to cut another $1.5 billion out of the budget, is again eyeballing basic education. SB 6482 begins to reverse that disinvestment and make the state move toward fulfilling its paramount duty.

How much would this 2 percent tax on income above $1 million bring in for education? About $275 million a year. That’s enough to reinstate the class size reductions in K-4 classrooms that the Legislature suspended last year. It is a start for our kids.

Who would pay? About 6,000 households in the state — that’s two out of 1,000. For example: Howard Schultz, Seattle’s coffee baron, would pay pay about $1 million from his recently announced $65 million income from Starbucks in 2011, leaving him with close to $64 million. Plus, he gets to use the company plane.

Do we continue to coddle the wealthy and violate our paramount duty toward our children’s education? Or do we begin to set the table for a society and an economy that benefits all of us, including the 1 percent, but not just the 1 percent. In a democracy, there is only one answer.

Okay, that’s not exactly how they put it, but that’s the takeaway. While affirming the state’s nearly top-notch credit ratings of Aa1 and AA+, the analysts cited a steeper-than-expected housing downturn, one-time budget fixes, and cyclical trends in our aerospace industry as negatively affecting the state’s outlook. This come as no surprise – we’ve been hearing this since the start of the Recession.

But Moody’s and Fitch also specifically cite the state’s structural deficit as one of the principle drivers of the downward revision. What’s a structural deficit? From Fitch:

The state, with no income tax, relies on consumption-based revenues. This makes Washington particularly vulnerable to reductions in consumer spending and limits the prospects for quick revenue recovery.

In other words, Wall Street’s recovery and corresponding salary increases and bonuses for high-income individuals don’t translate into significant consumer activity in Washington – so sales tax collections have remained flat. An income tax would help that, by diversifying Washington’s revenue collection, and ensuring revenue collections matches overall economic activity.

As wealthy venture capitalist Nick Hanauer wrote in a recent article, the economy will not recover until consumer spending rebounds – which cannot happen if all the wealth is concentrated at the top:

The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don’t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.

So goes the myth of trickle-down economics. Either we ask the rich to pay a bit more in taxes to support opportunity and middle class prosperity, or Nick Hanauer is going to have to start buying a hell of a lot more pants.

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.

But through it all, Social Security is still paying full benefits and keeping millions of people out of poverty in retirement. And not only is it largely immune to the wild swings of the stock market and the economy, Social Security is also perhaps the most successful anti-poverty program in American history – particularly for women.

Why? Women tend to live longer than men, are paid less, and are more likely to take time away from work to care for children. As a result, they often have smaller retirement savings accounts. But while women do tend to have a lower Social Security benefit than men ($3,000 less per year, on average), it makes up a much bigger part of their total retirement income.

Of the more than 1 million Washington residents who receive Social Security benefits each month in Washington, 424,000 are women over age 65. Thanks to Social Security, just 10% of Washington women over 65 live in poverty. Without Social Security, that number would jump to 43%. Social Security is an essential economic support for all Americans, older women in particular. You can learn more about protecting and strengthening Social Security for Washington state at Social Security Works – Washington.