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-20th 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.[1]
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.[2] 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.[3]
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.[4]
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.[5]
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.[6]
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.[7] 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
[1]
Schmitt 2/20/2014; Baker 2/23/2014; Pollin et al 2008
[2]
Media Matters for America 2011
[3]
Byun & Frey 2012, p. 6; Sommers & Franklin 2012, p. 1
[4]
Sen 1999. Pp. 18, 19 & 137
[5]
Pollin et al 2008; San Francisco Administrative Code
[6]
Minard 3/12/2014
[7]
Fuerstenberg 3/22/2014
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