Minimum-Wage Increase: Boost for Workers or Bane for Businesses?

Ventura County Star, August 03, 2013

By Timm Herdt and Stephanie Snyder

There may be no question that economists have probed more exhaustively than the one that asks whether an increase in the minimum wage has a negative effect on employment.

Information has been examined regionally, nationally, internationally and, in one seminal 2010 study, in 318 pairs of neighboring state-line counties that sit in U.S. states with different wage standards.

There have been many studies, lots of data, different methodologies   but not much variation in their conclusions. A 2009 “meta-study” by two Australian economists of 64 separate minimum-wage studies found that estimates on employment effects were heavily clustered very close to zero.

It appears, says economist Sylvia Allegretto of the UC Berkeley Institute for Research on Labor and Employment, that something close to a consensus has emerged.

“The range of answers has become so narrow that the debate has effectively been settled,” she said. “At this point, we’re arguing over whether it results in no negative employment effects or very small negative effects.”

Judging from the arguments that are raging in Sacramento this summer, however, the question about the economic wisdom of increasing the minimum wage hardly appears settled.

The Legislature may be poised to approve a five-stage increase that would raise California’s current $8 an hour minimum wage in annual increments until it reaches $10 an hour in 2018, and the prospect of such a raise has stirred emotional responses among both business groups and advocates for workers.

Income Debate

The arguments involve much more than just potential effects on employment. They constitute a passionate debate about the plight of the working poor, the meddling hand of government in private enterprise, the growing gap in income inequality and the struggles of small-business owners.

To John Kabateck, executive director of the state chapter of the National Federation of Independent Business, a minimum-wage increase could be one more straw that could break the backs of California small businesses already dealing with a state income tax increase and the imminent implementation of federal health care reform.

“Small business doesn’t have much of anything left in the till,” he said. “Make no mistake: Our members see this as a tax increase on Main Street.”

Tom Lucas, owner of Performance Nursery, which has locations in Somis, in Moorpark and near Redondo Beach, affirms that assessment. Of his 85 employees, half earn minimum wage, which is a higher percentage than five years ago because he said he can’t afford to pay much more than the state-mandated rate and still keep his doors open.

“It’s frustrating. I’m barely hanging on,” said Lucas, who notes that he hasn’t paid himself for two years. “It’s just getting to that tipping point. Should we be in business or not?”

Lucas said it is the wrong time to raise the minimum wage because the state is “barely pulling out of a recession.”

But if small businesses are struggling, so, too, are low-income workers.

“Even with a small negative effect on jobs, workers would still do better,” Allegretto said. “There is a lot of research that shows minimum-wage increases have reduced working poverty.”

The California Budget Project, a nonpartisan group that advocates for interests of low-income residents, reports that the purchasing power of the state minimum wage is nearly one-third below its value in 1968, when it stood at $1.65 an hour. The group further notes that a mother with two children working full time at the 2013 minimum wage would fall $2,890 below the federal poverty level.

“Raising it to $10 an hour would be essentially equal to the federal poverty level,” said Executive Director Chris Hoene. “We’re trying to make sure wages keep up with the economy, and trying to raise the living standards for an adult working population who are largely women.”

Using data from the U.S. Bureau of Labor Statistics, the UC Berkeley Institute estimates that 13 percent of California’s hourly wage workers are paid somewhere between the $8 minimum and $8.80 an hour.

In Ventura County, the federal figures show 10 percent of hourly workers make $9 an hour or less.

Not Only Teens

Of California workers at or near the minimum wage, 12.5 percent are teenagers, 34.9 percent are in their 20s and 52.6 percent are over 30. A clear majority, 53.1 percent, are women.

Those statistics, Allegretto said, disprove the widely held notion that the minimum wage is something that applies only to teenagers and entry-level workers.

“There is this idea that these are beginning jobs, but you’d think that by the time you’re 30, most people have been working for a while,” she said.

Alejandra Reyes, 37, has been working as a house cleaner earning $8 per hour for the past six months, but because her hours were recently cut from nearly 25 hours per week down to 12, she also has to pick up weekend shifts working as a security guard   a job that pays $10 per hour.

Despite holding multiple jobs, Reyes said everything she earns goes toward food and paying rent for a Port Hueneme garage converted into a small home she shares with her 15- and 16-year-old sons. Reyes also has split custody of her four youngest children, ranging in age from 8 to 11.

“Only God knows how I do it,” she said in Spanish.

The measure that would provide a raise to Reyes and the estimated 139,000 other minimum-wage workers in California is Assembly Bill 10, by Assemblyman Luis Alejo, D-Salinas. It has already passed the Assembly and one Senate committee and awaits final action before lawmakers adjourn Sept. 13.

California is one of 18 states that mandate a minimum wage above the federal standard of $7.25 per hour. The state rate of $8 per hour ranks fifth-highest among the states, but has been unchanged since 2008.

The bill proposes to raise the state minimum wage to $8.25 per hour on Jan. 1, 2014, and then raise it again in 25-cent and 50-cent increments each year through 2018, when it would reach $10 per hour.

Voter Support

Politically, minimum-wage increases have long been popular among voters. When a statewide initiative was placed on the ballot in 1996, it passed with 61 percent of the vote. Last fall, 58 percent of San Jose voters passed a ballot measure that raised the citywide minimum wage to $10 an hour.

More recently, a Gallup poll conducted in March found 71 percent support nationally for President Barack Obama’s proposal to raise the federal standard to $9 per hour.

Among the California bill’s biggest backers is the California Labor Federation, the statewide umbrella organization for labor unions.

“It’s really a moral issue for us,” spokesman Steve Smith said. “We have a lot of low-wage workers in this state who are falling behind.”

Smith said he believes the Democrat-controlled Legislature is poised to approve the measure and that it will likely be well-received by Democratic Gov. Jerry Brown.

“This is a core issue for a Democrat, and it is not a controversial issue to the public,” he said.

Even one of the measure’s biggest opponents the California Restaurant Association, whose industry would be most affected by the bill   concedes that some sort of increase seems inevitable.

But spokeswoman Angie Pappas said the association is pushing for changes, including carving out an exception for tipped employees. The federal law and those of 37 states permit lower hourly wages for waiters, waitresses, bartenders and others whose income is largely from tips.

But in California, she said, “It’s a challenge to get people to think about the industry as a special case.”

Since the wage has been unchanged for five years, “at some point, it’s going to go up,” she said.

Pappas said it’s time for those in her industry and other business advocates “to have a conversation” with the Brown administration. One major talking point will be the proposed five years of mandated increases.

“We should consider future increases in context with what’s happening in the economic environment of the state at that time,” she said.

The minimum-wage debate is being waged against a backdrop of public concern over widening income inequality and persistent wage stagnation that has hit low-wage workers hardest.

Allegretto charted average wages among California workers from 1979 through 2012, broken down by income groups. What she found is that, in inflation-adjusted dollars, the bottom half of workers were making less than they were 33 years earlier. Only the top 30 percent have recorded significant increases, with the top 10 percent making about a third more they were in 1979.

“The problem is our wage structure in the United States,” she said. “There is huge income inequality at the top. That low-wage workers are making too much is not a problem. The fact that they’re paid far too little certainly is.”

Income Gap

Lucas Zucker, a researcher with the Ventura-based community organizing group CAUSE, which advocates for low-income workers, said even the proposed increases would not bring minimum-wage workers close to the income level needed to pay for necessities without relying on government assistance.

“There’s a long way to go before all workers in California and all workers in Ventura County are making a living wage,” he said.

But arguments about the plight of the working poor seem to have little or no bearing on the ability of small businesses to meet their payroll, keep their doors open and turn a profit.

If mandated to increase the minimum wage, said Kabateck of National Federation of Independent Business, small businesses will have three choices: raise prices, cut payroll or close.

“Our members are fearful about any new cost that they don’t have the ability to make up,” he said.

As for the politics, Kabateck is hopeful that Brown, who held firm this year against any proposed new tax increases on top of those he helped persuade voters to approve last year, will stay true to that philosophy if a bill to increase the minimum wage reaches his desk.

“Our hope is that the governor appreciates the very bitter pill of Proposition 30,” he said. “It should give our leaders cause to push the pause button.”

Lucas, the Ventura County nurseryman, hopes low-wage workers and their advocates will pause to think about the broader economic implications. He fears a wage increase would lead to higher prices and a decline in job creation.

“You’ve got to watch what you ask for in life,” he said. “Let the market determine what the value of your labor is.”

 

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