Testimony to the Mayor's Income Inequality Advisory Committee
Submitted by Peter Costantini ~ April 2, 2014
I attended the Income Inequality Symposium on March 27 as an
analyst for Inter Press Service, a global non-profit newswire based in Rome.
However, I’m submitting these comments as a citizen.
I’ve looked at work from both sides now. Of my 40 years in
Seattle, I’ve spent twenty as a blue-collar worker and another twenty as software
professional. I’ve been a union member and a manager. I’ve done community
organizing locally, nationally and internationally. And as a journalist, I’ve
covered issues of labor, poverty and economics in this country, Latin America
and Europe. (See “Who is this guy anyway?” below.)
Naturally, my opinions have been shaped by these experiences.
Following are a few observations and recommendations in response to the Symposium
and based on other research.
Look at total impact on affected workers’ livelihood
Many studies have examined the effects of minimum wage
increases on employment in terms of job loss or gain. The implication has been
that, to the extent that raising the wage might cause job losses, it would create
some losers along with the many winners.
Most researchers around the country have found no
statistically significant effect on overall employment of workers impacted by
minimum wage increases. This was true even of Santa Fe, NM, which mandated an
increase of 65.0 percent in 2004 (from $5.15 to $8.50), a higher percentage
increase in the minimum wage than the 60.9 percent increase that $15.00 would
represent for Seattle in 2014.
However, the relevant measure is not whether a minimum wage causes
any net loss of jobs. From the point of view of wage earners, the question is
whether their total income in the course of a year is reduced or increased.
Most low-wage jobs already have variable hours and high
turnover: many people do not work a full 40 hours and many lose or leave jobs
in the course of a year. Labor “flexibility” has brought us far from the mid-20
th
Century manufacturing jobs that offered workers with a high-school diploma long-term
full-time employment at union wages sufficient to support a family and even buy
a house.
For low-wage workers today, employment effects show up primarily
in average hours worked weekly and total time out of work yearly. As a hypothetical
case, if my hourly wage goes up 50 percent from $10.00 to $15.00, but my
average weekly hours worked drop from 36 to 32 and I’m out of work for 4 weeks
instead of 2 weeks, I’m still considerably ahead of the game with a 28.0
percent increase in my yearly income.
year
|
average
wage
|
average
hours/week
|
weeks
unemployed
|
total hours
worked
|
yearly
income
|
yearly
increase
|
2014
|
$10.00
|
36
|
2
|
1,800
|
$18,000
|
|
2015
|
$15.00
|
32
|
4
|
1,536
|
$23,040
|
28.00%
|
If I qualify for unemployment insurance for the weeks out of
work, my situation is even better. Even if I were no longer eligible for food
stamps at the higher wage, my wage income replacing them would now be paying
into unemployment insurance, Social Security and Medicare. And that food-stamp
funding would now enlarge the pool for others.
Making more money for fewer hours worked also frees up other
possibilities off the job, such as spending more time taking care of my family.
In the job market, it would create space to take training courses, change
careers, look for a better job in the same industry, or get a second part-time
job.
Alternatively, let’s say I’m making $12.00 when my wage rises
to $15.00, a 25 percent increase. Assuming my average weekly hours worked drop
from 36 to 34 and I’m out of work for 3 weeks instead of 2 weeks, my yearly
income would still be 15.69 percent higher.
year
|
average
wage
|
average
hours/week
|
weeks
unemployed
|
total hours
worked
|
yearly
income
|
yearly
increase
|
2014
|
$12.00
|
36
|
2
|
1,800
|
$21,600
|
|
2015
|
$15.00
|
34
|
3
|
1,666
|
$24,990
|
15.69%
|
These examples intentionally use improbably large reductions
in hours and increases in unemployment, despite strong evidence that cities that
have implemented substantial wage increases have seen no significant employment
effects. Even if there were some reduction of total yearly hours for workers
who got the full 60.9 percent raise from $9.32 to $15.00, the loss of hours or
increase in unemployment would very likely be smaller for workers now making
$11.00, and smaller still for those now making $13.00. This is because the
percentage of their wage increase, and thus the increased costs they represent
to their employers, would be much smaller.
Similarly, if the minimum wage were raised in steps, for
example to $11.00, then $13.00, then $15.00, any employment effects would
likely be much reduced, based on the experiences of other localities.
“What will be the impact on total yearly incomes of the workers involved?” rather than “Will any jobs be lost?” is the first question we should be asking when considering raising the minimum wage.
Link future increases to productivity growth, not just inflation.
There seems to be wide agreement that any minimum wage
ordinance should be adjusted for inflation. It is merely “truth in
advertising” to specify wage levels in real terms for year-to-year
comparisons. Nominal wage values are not meaningful over time because they are
constantly eroded by inflation: $7.25 per hour today is worth less than $7.25
in 2009. What matters is the use value of a wage – how much it can actually buy
– and this is captured only when changes in the wage are stated in terms of
constant dollars.
The Washington state minimum wage is inflation-indexed, but
the federal minimum wage is not. This has meant that the latter has stagnated,
but each effort to raise it has ignited political trench warfare.
Example of a $15 wage linked to inflation over 6 years.
year
|
real minwage
|
inflation
|
2015
|
$15.00
|
2.00%
|
2016
|
$15.30
|
2.00%
|
2017
|
$15.61
|
2.00%
|
2018
|
$15.92
|
2.00%
|
2019
|
$16.24
|
2.00%
|
2020
|
$16.56
|
|
Using the Bureau of Labor Statistics estimate of 2 percent average
inflation for the next five years, $16.56 in 2020 dollars would have the same
purchasing power as $15.00 in 2015 dollars.
However, indexing the minimum wage only to inflation would
not help those who work for it to maintain their standard of living over time,
relative to the rest of society and the economy. Productivity growth raises the
general standard of living each year, and business owners along with
higher-paid employees have usually been able to hitch their wagons to it. But
most middle and low-wage workers have long since fallen behind.
Productivity is a measure of total outputs created per unit
of input. A yearly productivity increase represents the growth of economic
efficiency over that year, and the fruits of it are usually divided between labor
in the form of income and capital in the form of profits (except during the recent
recession, when a sizeable portion was offered as a sacrifice to Mammon).
Fox News commentator Bill O’Reilly was scandalized to discover that 99 percent of poor people have refrigerators and 81 percent have a microwave.
Imagine his outrage if he ever learns that the same thing has happened historically for indoor toilets, televisions, and cell phones: what was once seen as a
luxury has become a necessity for nearly everybody.
A major culprit is decades of productivity growth – and the ability of wage workers to capture a fair share of it.
Prior to around 40 years ago, hourly wages in this country
were roughly coupled to productivity and the benefits of economic growth were
shared more proportionately across society. Since then, a central failure of
our economy has been that, while productivity has continued to grow steadily,
real wages have stagnated and become decoupled from it, in large part because
of policies of business and government. This wage/productivity gap is particularly
damaging for low-wage workers, but in Seattle we’ve recently seen a vivid
example of how it can bite even Boeing machinists.
Graph: John Schmitt, CEPR
If the minimum wage had been indexed to productivity in
1968, by 2012 it would have been $21.72, according to economist John Schmitt of
the Center for Economic and Policy Research.
Tying the real minimum wage to productivity growth would help
to incrementally reduce the wage/productivity gap for workers at the bottom of
the wage scale. It would set a precedent for moving towards an economy where
all workers can once again share more fully in the fruits of their labor, or,
as we like to say in the software industry, their value-add.
Example of a $15 wage linked to current inflation and productivity over 6 years.
year
|
productivity minwage
|
inflation
|
real minwage
|
productivity
growth
|
2015
|
$15.00
|
2.00%
|
$15.30
|
2.00%
|
2016
|
$15.61
|
2.00%
|
$15.92
|
2.00%
|
2017
|
$16.24
|
2.00%
|
$16.56
|
2.00%
|
2018
|
$16.89
|
2.00%
|
$17.23
|
2.00%
|
2019
|
$17.57
|
2.00%
|
$17.93
|
2.00%
|
2020
|
$18.28
|
|
|
|
U.S. Bureau of Labor Statistics studies estimate that inflation will average 2.0 percent and that productivity growth will average 2.0 percent for the rest of the decade through 2020.
Provide incentives for employee-employer negotiations.
One value that minimum wage ordinances ought to encourage is
the active involvement of workers in their workplaces.
For example, SeaTac’s minimum wage ordinance offers a waiver
for unionized employees, allowing them to modify provisions of the law in a
bona fide collective bargaining agreement. San Francisco’s minimum wage law
has a similar provision.
Critics of the SeaTac law said it was merely a ploy to give unions
a foot in the door of the affected industries. So far there has been no
indication that this is true. But even if it were, for anyone concerned about
reducing income inequality, encouraging workers to form labor unions and to
bargain collectively for their interests is an indispensable policy tool. It
is also one that does not involve public expenditures.
The decline of labor unions has been a major factor in the
stagnation of real wages for workers in this country over the past few decades.
Overall union membership has dropped from over 30 percent in the 1950s to 11.3 percent
in 2013, with only 6.7 percent unionized in the private sector.
Some parts of the U.S. labor movement shared responsibility
for this decline: certain strains of unionism were known for looking out mainly
for the narrow interests of their own members, and some were infiltrated by
organized crime. In the 70s and 80s, I belonged to the Laborers International Union
of North America, a construction trade union that I later learned was associated
with La Cosa Nostra in some areas (though not Seattle). Today, after a consent
decree with the U.S. Justice Department and a period of de-mafiafication, LIUNA
has become one of the more democratic, progressive and dynamic unions in the
country, and a leader in organizing low-wage workers.
Overall, though, the near-death experience of organized
labor has been mostly due to unremitting attacks by big business in partnership
with the Reagan and later administrations, and labor laws increasingly hostile
to the interests of workers.
Despite their shortcomings, unions in any industry or
business are nearly always more democratic and transparent than their employers.
By definition, businesses are plutocratic: even if they have shareholders, the
reality is typically one million dollars, one vote. A labor organization, by
contrast, is a very direct kind of democracy, and its local leaders are often
held accountable by members who are well versed in the issues they are confronting.
It follows that public policies that seek to reduce inequality and increase
democracy should encourage worker involvement in labor organizations and workplaces.
Nevertheless, not all low-wage workers may want to join a
union. So any minimum-wage ordinance should encourage involvement in all kinds
of employee activity, including less-formal associations. One successful model
of this is the non-profit workers centers in many cities - such as CASA Latina
in Seattle - that provide support, training, information and a hiring hall to mainly
immigrant workers, but don’t formally represent them in collective bargaining.
On an individual level, a higher wage gives each worker more
power and flexibility to bargain informally with their employer about their job.
Individual workers who are not economically squeezed are more likely to
negotiate with their employers on things like raises, promotions and working
conditions, and if dissatisfied to vote with their feet and seek employment
elsewhere. This is obviously the case in high-paying, dynamic industries like
software, but it applies in low-wage industries as well.
In addition to employee benefits, there are benefits for
employers in this as well: workers who are more involved in their workplace and
better paid often become more productive and dedicated to the business and its
customers, reducing turnover and improving business processes.
All these levels of employee involvement are not merely economically
and politically desirable.
The right of workers to organize derives from the freedoms
of speech and association. Some see the hours spent working for someone else as
exempt from the civil rights we expect in the rest of our lives, but we do not have
to check these protections at the workplace door. Workplace freedoms are among
the economic freedoms guaranteed by Universal Declaration of Human Rights of
the United Nations, the highest authority of international law.
Article 23 Section 3 reads: “Everyone has the right to just
and favourable remuneration ensuring for himself and his family an existence
worthy of human dignity, and supplemented, if necessary, by other means of
social protection.” Article 23 Section 4 reads: “Everyone has the right to
form and to join trade unions for the protection of his interests.” These
rights are spelled out in more detail in the UN’s International Covenant on
Economic, Social and Cultural Rights.
Beyond guaranteeing basic rights, the minimum wage ordinance
offers an opportunity to recognize the agency of the workers involved and to
offer them a chance to increase their capabilities. Nobel-laureate economist
Amartya Sen conceived of agency as the ability of each member of society to
become “someone who acts and brings about change” rather than a “motionless
patient”. Capabilities, he says, “enable people to lead the kind of lives they
value.” Public policy can not only enhance these capabilities, but in turn “can
be influenced by the effective use of participatory capabilities by the
public.” In effect, capabilities are interactive and can create virtuous circles.
City policies should provide incentives for workers to
become active protagonists in their worklife and to acquire effective voices in
resolving issues that affect them. Workers’ activism in the minimum-wage
campaigns has already been an important step in this direction. The Seattle minimum
wage ordinance should further recognize the agency of the workers it covers by
encouraging their active involvement in determining their levels of
compensation and conditions of employment. An exemption for collective
bargaining agreements would be one small, practical way to accomplish this.
Create a mechanism for fairly resolving contested cases.
Minimum-wage ordinances have often had to confront questions
of how to deal fairly with special cases, such as small businesses and
non-profit organizations. Some laws exempt or phase in increases for non-profits
or small businesses with fewer than a certain number of employees: 25 in Santa
Fe, 10 in San Francisco, and numbers varying by industry in SeaTac.
Some participants in the Seattle discussion have proposed
that small businesses, which employ only a small percentage of the total
Seattle workforce, should be exempted from the ordinance or phased into paying
the full wage. Even if the net effect of the ordinance on the labor market
would produce no job losses, it is credible that some small businesses that employ
a large percentage of low-wage workers might have to cut their payroll significantly
or even go out of business if forced to pay the full increase immediately.
Non-profit organizations present similar issues. Many get
funding on a yearly or biennial basis, and pay salaries well below the private
sector all the way up to the top. By definition, all make no profits. To avoid
forcing them to lay off employees and leave low-income people without vital
services, some have proposed that the ordinance give such non-profits exemptions or more time for them and their funders to adjust to new wage levels.
Should the minimum wage be raised, the city and state should quickly respond by raising funding proportionately for any affected non-profits.
Even if small businesses and non-profits were exempted or
phased in, they would most likely still feel strong pressure to raise their
wage floor towards the full minimum wage. Most of the low-wage labor market in
which they compete for workers would be paying the new minimum, and as a result
many organizations not legally required to would probably need to raise wages
to keep and attract workers.
If Seattle creates exemptions or phase-ins, one way to
handle questions and conflicts that arise around them would be to create a hearing
mechanism for dispute resolution. This could be a new or existing permanent board,
or contracted arbitrators or mediators, who would be empowered to collect data
on the organization in question, establish its financial position, take public testimony
from owners, managers, employees and customers, and decide issues. To reduce
costs, enforcement could be complaint-based, initiated by employers or
employees. If an organization were found to be a bona fide small business or
non-profit, and its books and testimony of employer and employees established
legitimate hardship, it could be granted relief or deferment.
Such a hearing mechanism would have the added virtue of
encouraging employees to participate in the hearings. The panel could
independently verify the legitimacy of the issues raised by the employer, allowing
its workers to evaluate their employer’s petition and support or oppose it. The
process could become another incentive for worker agency.
Who is this guy anyway?
I’m a native New Yorker, raised in New Jersey and schooled
in Ohio, who came to Seattle in 1973.
Since then, I’ve participated in the labor market in a
variety of roles. For twenty years I did blue-collar work in construction,
shipyards, light manufacturing, gardening and office equipment repair. I
worked out of a union hall and also in non-union jobs. For the following
twenty years, I retrained and became a technical professional in the software
industry, including a number of years as program manager and people manager.
For those first twenty years I also volunteered a lot of
time as a community organizer. I worked for the Cascade Community Council, co-founded
the Seattle Tenants Union, served on the executive board of the National
Tenants Union, and represented it to community organizations in Europe. I also
co-founded Seattle Central America Media Project and Northwest-Nicaragua
Electoral Watch, and was active in the opposition to the Central American wars
of the 80s. I’ve also had the privilege of working with Nicaraguans and
Haitians as a technical volunteer.
In a parallel career as a journalist and analyst, I’ve written
about international economics, democracy, technology, labor, migration, popular
movements, and poverty. My reporting on these issues has taken me to Mexico,
Nicaragua, Haiti, Italy, France, Ireland, China and Nepal.
I earned a Bachelor of Arts degree from Antioch College, and
a Master of Unintended Consequences from the University of Hard Knocks.
References
Dean Baker. “Robert Samuelson's Arithmetic Challenged
Economics”. Washington, DC: Center for Economic and Policy Research, Feb. 23,
2014.
http://www.cepr.net/index.php/blogs/beat-the-press/robert-samuelsons-arithmetic-challenged-economics
Dean Baker & Will Kimball. “The Minimum Wage and
Economic Growth”. Washington, DC: Center for Economic and Policy Research, Feb.
12, 2013.
http://www.cepr.net/index.php/blogs/cepr-blog/the-minimum-wage-and-economic-growth
Kathryn J. Byun & Christopher Frey. “The U.S. economy in
2020: Recovery in uncertain times”. Washington, DC: Bureau of Labor Statistics
- Monthly Labor Review, January 2012.
http://www.bls.gov/opub/mlr/2012/01/art2full.pdf
Sylvia Fuerstenberg. “Guest: How raising the minimum wage to $15 would hurt a nonprofit”.
Seattle Times, March
22, 2014.
http://seattletimes.com/html/opinion/2023193234_sylviafuerstenbergopedminimumwage1523xml.html
Media Matters for America. “Fox Cites Ownership Of Appliances To Downplay Hardship Of Poverty In America”. July 22, 2011.
http://mediamatters.org/research/2011/07/22/fox-cites-ownership-of-appliances-to-downplay-h/148574
Anne Minard. “Small Businesses Are Not the Enemy”.
The Stranger, March 12, 2014.
http://www.thestranger.com/seattle/small-businesses-are-not-the-enemy/Content?oid=19052563
Robert Pollin, Mark Brenner, Jeannette Wicks-Lim & Stephanie Luce.
A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States. Ithaca, NY: Cornell University Press, 2008.
San Francisco Administrative Code. Chapter 12R: Minimum Wage.
http://www.amlegal.com/nxt/gateway.dll/California/administrative/chapter12rminimumwage?f=templates$fn=default.htm$3.0$vid=amlegal:sanfrancisco_ca
John Schmitt. “New CEPR Issue Brief Shows Minimum Wage Has Room to Grow”. Washington, DC: Center for Economic and Policy Research, March 19, 2012.
http://www.cepr.net/index.php/blogs/cepr-blog/new-cepr-issue-brief-shows-minimum-wage-has-room-to-grow
John Schmitt. “Why Does the Minimum Wage Have No Discernible Effect on Employment?” Washington, DC: Center for Economic and Policy Research, February 2013.
http://www.cepr.net/index.php/publications/reports/why-does-the-minimum-wage-have-no-discernible-effect-on-employment
John Schmitt. “CBO and the Minimum Wage”. Washington, DC: Center for Economic and Policy Research, February 19, 2014.
http://www.cepr.net/index.php/blogs/cepr-blog/cbo-and-the-minimum-wage
John Schmitt. “CBO and the Minimum Wage, PT 2”. Washington, DC: Center for Economic and Policy Research, February 20, 2014.
http://www.cepr.net/index.php/blogs/cepr-blog/cbo-and-the-minimum-wage-pt-2
Amartya Sen.
Development as Freedom. New York, Alfred A. Knopf, 1999.
Dixie Sommers & James C. Franklin. “Employment outlook: 2010-2020. Overview of projections to 2020.” Washington, DC: Bureau of Labor Statistics - Monthly Labor Review, January 2012.
http://www.bls.gov/opub/mlr/2012/01/art1full.pdf
Footnotes
