What Raise the Wage Would (and Might) Do at State and Local Levels

May 11, 2015

As I said the other day, Senator Patty Murray and Congressman Bobby Scott have introduced an ambitious bill to at long last raise the federal minimum wage — and at longer last, do away with the sub-minimum tip credit wage.

One might wonder why we need the bill when so many states, plus some local governments have already raised their minimums. The answer lies in part in the higher and uniform wage floor the Murray-Scott Raise the Wage bill would set.

The other part — more speculative — has to do with how the bill could affect further state and local minimum wage initiatives. Assuming, as seems reasonable, that Congress won’t pass it, we’re likely to see such initiatives as we approach the sixth year since a federal minimum wage increase.

And the more we see, the more we could see the bar raised for employers’ quasi-voluntary initiatives to raise the wage floor for their lowest-paid workers. “Quasi” because they’re clearly responding to well-publicized campaigns they rightly view as threats to their brands — and bottom lines.

Direct Effects on State and Local Minimum Wage Rates

As in the past, state and local governments have grown increasingly impatient at the federal government’s failure to raise the minimum wage. Fourteen states and the District of Columbia passed their own increases last year.

None of them, however, now mandates a wage as high as $12 an hour, though minimums in a few major cities will eventually exceed it. And only four of the new state laws, plus the District’s provide for annual cost-of-living adjustments once their new rates are fully phased in.

Eyeballing the rates they’ve set and the full phase-in dates, I doubt that any, except perhaps the District’s will match $12 in 2020. More importantly, we still have 19 states that peg their minimum wage to the federal or have no minimum wage law of their own.

And only seven states require employers to pay their workers the full minimum wage, even those who often earn tips. Not that we haven’t seen efforts to eliminate tip credit wages in other states — and in the District.

All steamrollered by the National Restaurant Association’s state affiliates, allied groups purporting to represent small businesses and the restaurant industry’s hired gun, the Employment Policies Institute (not to be confused with the Economic Policy Institute).

What the Rates Tell Us

The varying minimum wage rates themselves tell us a couple of things. First — and most obviously — workers in some states will be stuck with the current federal minimum and significantly lower sub-minimum unless the federal law is changes.

Second, also obviously, many millions of workers in most, if not all other states would also get paid more under the Murray-Scott bill. As I mentioned earlier, the Economic Policy Institute estimates 37.7 million by 2020, not counting workers paid the $2.13 federal tip credit wage — or as in the District, a slightly higher sub-minimum.

How Raise the Wage Could Raise Wages Without Changing Federal Law

Much as we might wish, Congress won’t raise wages for those 37.7 million workers and the additional uncounted tip credit workers — not at least, until new elections dramatically shift the party balance. Raise the Wage could nevertheless have near-term, real-world effects.

These would arise from the way the bill may alter the framework within which policymakers and we, the voter/consumer public, assess current and reasonable minimum wages.

Essentially, the proposed minimum could become a new reference point, of sorts, for initiatives to raise state and local minimum wages. The proposed tip credit wage phase-out might become a reference point too.

We already see how the fast-food worker strikes — and more recently, some broader strikes — have made $15 an hour seem just and reasonable for more than an outlier city like Seattle.

The movers and shakers behind San Francisco’s recent ballot measure didn’t just pull their $15 an hour minimum out of a hat. Nor, I think, was the overwhelming voter support for the measure unrelated to the fact that $15 no longer seems like mere pie in the sky.

In fact, it’s made $12 an hour five years from now seem like a quite modest proposal — as indeed, it is. Recall that $12 in 2020 won’t be worth as much as it is today. If it were effective today, a full-time, year round minimum wage worker’s take-home pay would still be less than needed to lift a four-person family above the poverty line.

So Raise the Wage is by no means the be-all-and-end-all. Nor would the sponsors and many cosponsors say otherwise. But it would ease the budget crunch for poor and near-poor working families, narrow the yawning gap between them and the highest earns — and perhaps, as some who ought to know say, also prove a benefit to employers who’d have to pay it.

As I’ve suggested, it may do all of these good things in the not-distant future, even if, as expected, the Republican leaders in Congress let it die because they want to spare their members what could be a troublesome vote.

But we won’t see those good things everywhere and for everyone without changes in the federal law.


If at First You Don’t Succeed, Try, Try Again to Raise the Minimum Wage

May 7, 2015

As you may have read, Senator Patty Murray and Congressman Bobby Scott have introduced a bill to raise the federal minimum wage. It’s the latest in an ongoing, going-nowhere-now series of Democratic efforts to raise the wage.

The Murray-Scott bill has several major features in common with its recent predecessors, but also several that are somewhat different. What foreseeably won’t be different are the cavils opponents will raise, not to mention the fate of the bill in Congress — this Congress, at least.

But Raise the Wage — the name of the bill, as well as its main thrust — is hardly a futile gesture. For one thing, it gives Democrats a popular, differentiating issue to campaign on.

For another, the bill can further focus attention on the shrinking value of the current minimum wage, the plight of workers who receive it and the safety-net costs higher-income taxpayers cover to keep those workers and their families from utter deprivation.

What the Bill Would Do for the Federal Minimum Wage

The bill would gradually raise the federal minimum wage from $7.25, where it’s been stuck since mid-2009, to $12.00 in 2020. The first phase of the increase — 75 cents — would kick in at the beginning of next year. The wage would then rise by $1.00 each year thereafter.

After 2020, the wage would be adjusted annually by the same percent as the national median hourly wage increased. This is one of the differences from the earlier bills, which provided for annual adjustments based on consumer price inflation.

The Economic Policy Institute, which provided analytic support for the new approach, argues that benchmarking to the median wage is fairer because adjusting merely for inflation “assumes that minimum-wage workers should not expect their standard of living to improve relative to the standard achieved by workers 50 years ago.”

In 1968, when the federal minimum wage was worth $10.79 in today’s dollars, it was slightly over half the median. It’s about 37% of the median now and would return to roughly the 1968 ratio, according to EPI estimates.

What the Bill Would Do About the Tip Credit Wage

The Murray-Scott bill would also very gradually phase out the tip credit wage, i.e., the minimum employers must pay employees who receive more than $30 a month in tips. The federal tip credit wage is currently $2.13 an hour, as it has been since 1991. And it’s still the legal sub-minimum in 17 states.

The bill would boost it to $3.15 next year and then increase by no more than $1.05 an hour until it equaled the regular federal minimum. The same adjustments based on the median wage increase would then apply.

This is more ambitious than bills introduced in the last several years, which would have gradually raised the tip credit wage until it reached 70% of the regular federal minimum and then preserved that ratio.

What Opponents Will Say

Quick out of the box, economist/blogger Jared Bernstein anticipates “the same tired arguments” we hear every time anyone floats the notion of a minimum wage increase. He heads his post with a graphic from EPI that dispatches with some of the myths.

No, minimum wage workers aren’t mostly teenagers. Only 11% are under 20 — many considerably older, since their average age is 36. No, they’re not earning some extra spending money for fancy cell phones and the like. On average, their earnings make up more than half their family’s income.

And despite what we will undoubtedly hear again, a minimum wage increase will not hurt those it’s intended to help. A recently-published analysis of more than 200 studies concludes that “increases in the minimum wage … have very modest or no effects on employment, hours, and other labor market outcomes.”

How Many Workers Helped

EPI estimates that the newly-proposed increase would benefit more than 37.7 million workers by 2020 — more than one in four of the entire workforce. This includes not only those who’d be legally entitled to increases, but about 7 million whose wages are somewhat higher. They’d get a bump-up as employers adjusted their pay scales to preserve a differential.

The projected impact is so broad because the Murray-Scott bill would lift minimum wages even in the majority of states and the District of Columbia that now have minimums higher than the federal. And I would assume it’s even broader because the vast majority still permit a sub-minimum tip credit wage — a factor EPI’s estimates apparently don’t fold in.

I’ll have more to say about these angles in a separate post.

In the interim, you can demonstrate support for the Raise the Wage bill by signing a petition EPI has launched.

 


Who’s Responsible for Fast-Food Workers’ Low Wages?

October 2, 2014

Let’s see. Where was I? In the midst of dissecting responsibility for the low wages so many fast-food workers are paid.

As I’ve already suggested, it’s a mistake to focus solely on fast-food restaurant owners because most of them are franchisees. So in addition to the usual restaurant costs, e.g., food, labor, rent, we need to recall the fees, royalties and other charges the franchising companies levy.

Whether these make higher wages unaffordable is a separate issue. The report for The New Yorker that I used in my previous post indicates that some franchisees are doing very well indeed.

Less iffy are other ways that fast-food companies share accountability for wages that are far too low to live on. Hourly rates are only part of the picture.

Another, which I’ve mentioned before, though not in this context, is software the companies provide to enable just-in-time scheduling, e.g., keeping workers from clocking in when they arrive and/or sending them home early when business is slower than expected.

A lawsuit against McDonald’s seeks to hold the company jointly liable for the former, which is one of several labor law violations alleged against its franchisees. Whatever the outcome, the software represents a more general sort of accountability.

Because, for good and ill, McDonald’s exercises considerable control over how its franchised restaurants are operated. It obviously has a large interest in maximizing sales — and in enforcing common standards, e.g., cleanliness, quick service, foods served and how prepared.

But it has an even larger interest in maximizing shareholder profits — closely related to, but not the same as the interests cited above. Disgruntled franchisees claim they’re being squeezed. “[T]oo much focus on Wall Street,” one says.

This much is certain. McDonald’s has been buying back shares, i.e., taking them out of the market to boost the price of those investors still hold. It spent more than $1.8 billion on buy-backs last year alone.

And it’s paying top management handsomely. The CEO received about $7.7 million last year, according to a Demos analysis. Crain‘s Chicago Business reports $9.5 million, noting he received more in 2012.

Either figure is far from the highest amount big fast-food CEOs received. The average, skewed upward by Starbucks’ CEO, was about $23.8 million, not including certain types of income CEOs commonly receive. This makes for an overall CEO-to-worker pay ratio of more than 1,000-1.

For all but three of the CEOs Demos could report on, at least 60% of compensation related to stock awards and stock options cashed in. So you can see that they have a very good reason to prop up the value of their companies’ shares — two actually, since if share prices tank, they’re out of work.

Which brings us to another player in the wage-setting arena. Shareholders, we’re told — not thee and me, but hedge funds and other big investors — demand short-term gains, no matter what.

The long-term gains companies might achieve by paying workers more — or in the immediate case, making it easier for franchisees to pay more — don’t qualify as “maximizing shareholder value.”

Companies that don’t deliver enough fast enough face takeover threats — or the equivalent. McDonald’s, for example, felt constrained to sell off restaurants and promise $1 billion in buy-backs to appease a hedge fund manager.

In short, we need to look beyond the balance sheet of a fast-food franchisee to assess the arguments against a minimum wage increase. And a place to look is the corporate parent — what it does with its profits, how it gets them and what drives the decisions it makes.

The self-proclaimed Franchise King suggests that companies like McDonald’s will have to adjust their fee structure to help their franchisees if the minimum wage increases to $15 an hour — as it eventually will in Seattle. Perhaps this would also apply to some of the other recent and prospective minimum wage boosts.

It’s hard to predict how all this will net out. We know that the majority of fast-food workers today aren’t teenagers who want a little running-around money, but mostly adults — in many cases, parents with children.

We know we’re subsidizing low wages because our tax dollars pay for the public benefits that more than half of all “front-line” fast-food workers rely on. What they receive from just four of the major federal programs costs us nearly $7 billion a year — $1.2 billion for McDonald’s workers alone, according to the National Employment Law Project.

And we know — or ought to — that fast-food companies could tweak their business models to support higher wages in their franchised restaurants, as well as pay them directly in the restaurants they operate.

We might have to pay more for our burgers. Or perhaps, as Tim Worstall at Forbes says, not a penny more.

Whichever, shareholders would have to decide that their investments are better off if fast-food companies address the root causes of protests, bad publicity and related risks that McDonald’s has already identified — even if this means less in dividends and/or buy-backs.

Not saying it would, mind you. We’ve got a raging debate over how a substantial minimum wage increase would affect franchised fast-food restaurants. So we’ve no firm grounds for predicting outcomes at the corporate level.

The fast-food workers’ protests seem to me an altogether good thing. They’ve already helped gain an executive order that will set $10.10 as the initial minimum wage for workers employed by federal contractors.

Whether they’ll galvanize more minimum wage increases to $15 an hour is, to my mind, doubtful. But they’ve surely raised awareness of the need for a substantial minimum wage increase.

And they’ve prompted some public scrutiny of how franchising businesses make their money and what they do with it.

That, to me, is the best retort to the National Restaurant Association and the fast-food companies it fronts for, which staunchly maintain that franchisees can’t possibly absorb a minimum wage increase. And to the Heritage Foundation, whose brief got me started on all this.


Live the Wage Challenge Offers Bare Glimpse of Minimum Wage Workers’ Struggles

July 29, 2014

Not long after I started this blog, I raised questions about the value of the Food Stamp Challenge. This exercise, as you may know, calls on participants to feed themselves — and if they choose, their families — on the cash equivalent of the average SNAP (food stamp) benefit.

This week, we’re in the midst of a different sort of challenge. Elected officials, community leaders, congregations and the likes of thee and me are urged to live, for a week, on what a full-time minimum wage worker has to spend, less housing costs and taxes. (But see below.)

The minimum wage here is $7.25 per hour — the federal minimum that fully phased in five years ago. It remains the minimum in 28 states and the U.S. territories.

The challenge sponsors obviously want Congress to raise the wage, which it surely won’t unless and until Democrats gain a majority in the House and a larger majority in the Senate. Either that or a very different sort of Republican leadership to work with.

But this in itself doesn’t argue against the challenge. The aim, I take it, is to call attention in a new, social-media-oriented way to how far the minimum wage falls short of daily living costs.

We’re encouraged to tweet our experience and/or share it in other ways. Some of the handful of Democrats in Congress who said they’d participate have done just that. None of them, as I’m sure you’ve guessed, needs the experience to support the minimum wage increase that’s still stuck in the Senate.

Congressman Tim Ryan of Ohio says, “[I]t’s important for those of us in leadership positions … to make sure … we really understand the deep challenges people face.”

But Live the Wage, as the week-long challenge is called, will do no such thing — something the guidance generally acknowledges, but understates.

The minimum wage budget for the week is $77. The organizers arrive at this by deducting average taxes that are roughly double the worker’s share of payroll taxes and $176.48, which is said to be the average for housing.

The average housing cost then is about $706 a month. I’m told this figure comes from the Economic Policy Institute and represents the average rent for a one-bedroom apartment.

It still seems to me very low — and way too low in many parts of the country. And of course, the apartment would be awfully crowded for a minimum wage worker with children.

More importantly, the $77 doesn’t exclude only housing and taxes. Challenge-takers don’t have to deal with any other “long-term and inflexible costs,” as the Center for American Progress Action Fund’s alert to the challenge reassuringly notes.

So loan payments, healthcare and childcare costs are all explicitly off-budget. So, for obvious reasons, are fees many low-income workers incur because they don’t have bank accounts — or in some cases do, but get paid with debit cards.

Bottom line, according to the guidance, is that the $77 must cover only meals, groceries, recreation and transportation. But recall that transportation doesn’t include car payments or insurance.

As with the Food Stamp Challenge, however, the most important limit is that it’s very brief — and can end whenever the going gets too tough.

Congressman Ryan has stocked up on diapers, but if the baby needs more, he’ll surely buy them — just as he snagged a pork chop after airport security officers took his jars of peanut butter and jelly during his Food Stamp Challenge.

That’s okay, the challenge guidance says. The point is “to give a glimpse of how little the minimum wage provides a working family in this country.”

But, it adds, no one is “expected or encouraged to default on any legal, financial, work or family obligations.” And surely no participant will.

So no one’s going to glimpse the decisions about which bills to pay and not, the acute pressures when the car breaks down or the kid gets sick — or the breadwinner, for that matter. No one’s going to feel despair when there’s not enough money for diapers.

If the Live the Wage challenge actually raises awareness among the friends, relatives, Twitter followers and the like that participants are to share their glimpses with, then perhaps it’s all to the good.

But I’ve got a hard time believing that anyone who’d support a minimum wage increase doesn’t already know that $7.25 an hour isn’t enough to live on, since a large majority of voters do.

And the glimpses aren’t going to make a whit of difference to Republican leaders in Congress.

If they had the slightest interest in what life below the poverty line is like, they’d be better off listening to what the real experts like Witnesses for Hunger Tianna Gaines Turner and Barbie Izquierdo have to say.