This Is Why Washington Will Keep Ignoring Minimum Wage

Source: Thinkstock

Source: Thinkstock

Republican Senator and Majority Leader Mitch McConnell of Kentucky has indicated that the question of increasing the federal minimum wage has taken up too much of the Senate’s time. He told wealthy donors – at a secret strategy conference organized in June by the politically active Koch brothers — that if the party secures the Senate majority in November’s midterm elections, Republican lawmakers will not “be debating all these gosh darn proposals,” unlike now, where all senators do is “vote on things like raising the minimum wage,” a proposal McConnell said will cost the country 500,000 jobs. But while studies have shown that money talks in American politics, and “the preferences of the average American [voter] appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy,” the issue of minimum wage cannot be easily ignored when thousands of Americans in cities across the United States are protesting, demanding that they be paid a living wage of $15 and be allowed to unionize.

Labor Day’s national strike, drawing protesters in around 150 cities, represented an intensification of the two-year campaign to raise hourly pay for fast-food workers. Organized by the Service Employees International Union and various other labor groups under the banner “Fight for 15,” the strikes aimed to draw attention to the fact that that a great majority of workers in the fast-food, hospitality, and other service industries continue struggle on low incomes while the broader recovery narrative focus on relatively strong job creation numbers, the stock market rally, and the slowly return to healthy economic growth.

“They say the economy is getting better, but we’re still making $7.50,” Latoya Caldwell, a Wendy’s worker who was arrested with hundreds of others, told NBC. With the growing visibility of the strikers and their cause, Caldwell believes that she and her fellow protesters are “a movement now.” Indeed, organizers have said they believe it to be the largest demonstration of its kind.

“The fast-food workers have captured the imagination of the nation,” Mary Kay Henry, the International President of SEIU, one of the country’s largest unions, commented in a recent press release. Of course, labor politics experts do not widely expect that these strikes will provide the needed impetus for Congress to act on the issue of a minimum wage hike or for union rights to be granted in the short-term. However, it is also true that the strikes have captured the public’s attention, and that attention has motivated lawmakers in some cities like New York City to consider the conditions of low-wage workers.


Data does not reflect results of midterm elections

Minimum Wage Is Rising Despite Congress

Thirteen states raised the minimum wage on January 1, 2014. Nine of those — Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington — decided to lift the lowest legal hourly pay and index future minimum wage increases to price inflation. Connecticut passed legislation boosting hourly wages to $10.10 by 2017 — the same rate President Obama has asked Congress to implement for the federal minimum wage; in January 2013, New Jersey Governor Chris Christie vetoed minimum wage legislation, but ten months later, 61 percent of voters approved a ballot measure to raise minimum pay from $7.25 to $8.25; New York has passed a bill hiking minimum wage to $9 in 2015; Rhode Island’s Democratic Governor Lincoln Chafee signed a bill in July increasing minimum wage from $8 to $9; Maryland’s state legislature approved a plan to raise the wage floor from $7.25 to $10.10 by 2018; and, on July 1, Washington D.C.’s minimum wage workers say hourly pay increase from $8.25 to $9.50. Hawaii, Minnesota, Delaware, and West Virginia also passed legislation lifting the wage floor. Voters in four states — Alaska, Arkansas, Nebraska, and South Dakota — approved minimum wage increases in November’s congressional midterm elections, meaning by January 1, 2015, 29 states and Washington D.C. will have a minimum wage about the federal mandate.

More than 120 cities and counties across the United States have implemented what is known as livable wages of between $12 and $15 per hour. At the beginning of the year, SeaTac, a community around Seattle-Tacoma International Airport, implemented a $15 per hour minimum wage, becoming the first jurisdiction in the country to set a wage that high. Seattle followed suit; it was the first major city to approve a $15-per-hour minimum wage. Both San Francisco and Santa Fe have moved minimum wage higher independently of state levels as well. As of the beginning of August, 23 states plus Washington D.C. have set their lowest legal wage above the level mandated by the federal government

Both worker advocates and labor organizers believe that ballot initiatives are a viable means to enact minimum wage increases, especially in states where elected officials have attempted to stifle the issue. However, Oklahoma has banned local minimum wage increases.

That state seems to be the exception in growing popularity of the movement to lift minimum wage; in fact, according to a recent Gallup poll, 76 percent of Americans believe the federal government should lift the wage floor to at least $9 per hour. More than two-thirds of small business owners support a higher minimum wage, despite politicians claims that minimum wage increases cost jobs and productivity. Even a number of major U.S. business have set higher wage; Ikea, Gap, Recreational Equipment, Inc., Whole Foods, Trader Joe’s, Ben & Jerry’s, and Costco all pay more than $7.25 per hour.

Costco pays starting employees an hourly wage of $11.50 per hour, and the average employee wage is $21 per hour. The company’s Chief Executive Officer and President Craig Jelinek has publicly endorsed raising the federal minimum wage to $10.10 an hour. “I just think people need to make a living wage with health benefits,” Jelinek told Bloomberg. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”

Min Wage

Source: Pew Research

Is the Federal Minimum Wage Worth Less?

The federal minimum wage of $7.25 has not been adjusted in five years. Had the national wage floor been set to increase regularly in conjunction with inflation as some states have proposed to do, minimum wage would now be $10.90. In 1938, the Fair Labor Standards Act first established minimum wage at 25 cents per hours, and over the past 76 years, the wage floor has been lifted 22 times. But thanks to legislative stalemate, inflation-adjusted minimum wages in the United States have fallen in both absolute and relative terms for a most of the past forty years. Adjusted for inflation, the purchasing power of a minimum wage income peaked in 1968, when the wage floor was set at $10.95 (in 2014 dollars). Since the minimum wage was last raised in 2009, it has lost 5.8 percent of its real value, or purchasing power, to inflation, meaning the amount that the annual income of a minimum wage worker earns has decreased by approximately $1,500 — or more than twice the average monthly rental of a one-bedroom apartment. Erosion of the minimum wage over the past four decades has been a main contributor to wage inequality.

For many years, America’s minimum wage has been low by international standards; according to The Economist, it equaled 38 percent of the median wage in 2011 — almost the lowest in the OECD. After the wave of retail worker strikes swept across the United States in 2013, the issue of minimum wage was again propelled into the forefront of the national debate in 2014 by President Barack Obama’s State of the Union Address. “Americans understand that some people will earn more than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success,” said the president, who asked Congress in last year’s address to lift minimum wage. “But Americans overwhelmingly agree that no one who works full-time should ever have to raise a family in poverty.”

Low-wage, non-union employees of Wal-Mart and fast-food chains like McDonald’s, Wendy’s, and Burger King — the giants of the post-financial crisis economy — drew attention to the issue of America’s minimum wage by striking throughout 2013 and 2014. Union strategists had hoped the presidency of Barack Obama would set in motion a transformation of the labor law regime by passing legislation to increase the federal minimum wage. Obama began 2013 by proposing in his State of the Union address a $1.25-per-hour increase to the $7.25-per-hour federal minimum wage, along with a plan to index minimum wage to inflation. In support of that increase, he explained that as a result, “employers may get a more stable workforce due to reduced turnover and increased productivity.” However, Obama’s attempts to increase the United States minimum wage through legislation stalled in Congress in 2013, and his campaign to bring the wage floor to $10.10 has yielded no results nationally.

Who Earns the Minimum Wage in the United States?

It will take an act of Congress to increase the lowest legal pay for the approximately 3.3 million minimum wage workers across the United States who earn $7.25 per hour or less and improve the wages of the more than 28 million people who earn less than $10.10 per hour, many of whom do not fit the low-wage stereotype of a teenager with a summer job. Their average age is 35 years-old; a majority work full-time; more than one-fourth are parents; and, as often as not, they earn half their households’ total income.


Source: White House

But a minimum wage increase is a nonstarter in the divided U.S. Congress. Politicians — both congressional Republicans on one side of the debate and their Democratic colleagues and the White House on the other — are holding entrenched positions. This stance is by no means new; minimum wage has been a major front in the political battle between Republicans and Democrats since President Franklin D. Roosevelt’s Great Depression-era New Deal package of reforms.

Those on the right of the political spectrum argue that a substantial increase to minimum wage would dramatically hurt employment. An increase of the minimum wage is complicated by the fact that the fast-food workers striking for higher pay are not even impacting the profitable companies whose branded burgers they flip, chicken they fry, and burritos they fold. Rather, the owners of those franchises will be hurt. There is no employment contract between the workers and Taco Bell, McDonald’s, or KFC, so those companies theoretically cannot determine the wages the workers are paid. Labor costs for these franchise owners are already significant, according to the Heritage Foundation.

labor costs

The purpose of the minimum wage is to make sure that low-wage workers are able to maintain a minimally acceptable standard of living; when Roosevelt sent the 1938 Fair Labor Standards Act to Congress, he noted that America should provide its workers with “a fair day’s pay for a fair day’s work.” But still there is a debate over lifting minimum wage, especially since wages have not kept pace with inflation, the cost of living, or the average hourly wage of private-sector workers in production and non-supervisory jobs, which serves as a gauge of broad changes in the living standards of most workers. Yet Republicans in Congress, organizations like the U.S. Chamber of Commerce and the National Retail Federation, and employers of low-wage workers bemoan the effect it will have on business.

Will Increasing the Minimum Wage Cost Jobs?

Kentucky Senator Mitch McConnell is just one congressional Republican who does not support lifting the wage floor. In his state, the minimum wage stands no higher than the federally mandated level, and 4.3 percent of all hourly workers earn $7.25 or less — a share roughly equivalent to the broader United States. Just as the American public as a whole, a majority of Kentucky voters want the federal government to raise the minimum wage. While McConnell has not made a habit of expressing his frustration at the number of times the Senate has voted on minimum wage — as he did at the Koch brothers’ donors conference — the lawmaker has been clear why he does think minimum wage should not be increased. McConnell argues that a nearly three-dollar increase in the wage floor will cost Americans jobs.

Unfortunately, the connection between a minimum wage increase and layoffs is complex, and it has been greatly politicized. Of course, the social benefits of a minimum wage hike, like reducing inequality, must be weighed against any possible costs. In this case, the worry is that employers will hire less if their labor costs increase, and that is a valid concern.

Among economists and politicians, there are competing schools of thought on the economic impact of increasing the minimum wage. Some research shows that a small increase in the minimum wage, such as the one proposed by Obama, would have no adverse employment effects. For example, a study conducted by University of Massachusetts Amherst economist Arin Dube, T. William Lester, and Michael Reich suggested that, “A hypothetical 10 percent increase in the minimum wage affects employment in the restaurant or retail industries, by much less than 1 percent; the change is in fact statistically indistinguishable from zero.” In an opinion piece for The New York Times, Dube argued that Americans generally support the idea that, “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country,” as Roosevelt said in 1933. By comparison, other research shows that lifting the wage floor would have an adverse impact on employment.

University of California Irvine economist David Neumark believes available data proves that a minimum wage increase is a poor tool to combat poverty. While lifting the wage floor does create some “winners,” as he argued in a December 2013 opinion piece for The Times, “some low-skilled workers lose their jobs and others fail to find work because of the higher wage floor.” The earn-income tax credit is a far more effective means to address poverty. “Suggesting that federal policy addressing low-wage work and low-income families has somehow failed because the minimum wage has not kept pace with inflation ignores the fact that we have moved away from a focus on the minimum wage — a policy with many flaws — and toward the earned-income tax credit,” he wrote.

The fact that the credit only helps families with children is key, in Newmark’s opinion. “There are different views across the political spectrum as to why adults are poor and whether providing poor adults with assistance reduces work effort and encourages dependence on government support. But no one views children as actively taking part in decisions that make them poor, and we know that living in poverty is associated with adverse outcomes for children.”

It is true that increasing the minimum wage to $10.10 per hour will cost 500,000 jobs, according to calculations conducted the nonpartisan Congressional Budget Office in February. That drop in employment is equivalent to a 0.3-percent decrease. But, at the same time, 900,000 families would be lifted out of poverty and the incomes of 16.5 million low-wage workers would be increased in an average week. While the CBO did cede that the actual effect of a minimum wage increase could vary between zero and 1 million jobs lost, the Obama administration and other top labor economists have maintained that the there is far more likely that jobs losses will be minimal. As Jason Furman, the Chair of the White House’s Council of Economic Advisers, told The Times, finding no jobs effect at all would be a “perfectly reasonable estimate.” Harvard’s Lawrence Katz said that the agency used “a lot of off-the-shelf estimates” of the employment impact rather than more high-quality data produced by other studies. The fact that large percentages of the millions of jobs created since the Great Recession have been low-wage, while jobs lost were primarily higher paying positions, must be taken into account when debating minimum wage legislation.

Where Do Republicans Get Their Ideas on Minimum Wage?

After the CBO released its report in February, McConnell told The Times that, “Raising the minimum wage could destroy as many as one million jobs, a devastating blow to the very people that need help most in this economy.” For McConnell, 500,000 (or perhaps a million) jobs is too high a cost. Since Republicans like McConnell chose to focus on the employment losses side of the labor equation, as opposed to the nearly 1 million families that would be lifted out of poverty as a result of the minimum wage increase, does not make the GOP’s position any less valuable. The problem is the political game has colored his perception on the issue. He has called votes on minimum wage “a waste of time,” and the Republicans have done little to change their reputation as the party of wealthy Americans. In a recent interview with Politico, McConnell indicated that if reelected this November and if the GOP gains the Senate majority, his focus as leader would be escalating the political discord between the parties rather than advancing new legislation.

Legislative inaction is the fault of both parties; Democrats have not cooperated with Republican-led jobs bills, while Republicans have blocked minimum wage legislation. More importantly is the difference between how McConnell discusses the need for job creation and how the Kentucky Senator speaks with donors about minimum wage hikes — which economists almost universally agree will alleviate poverty in the United States and help solve income inequality.

Donors courted by McConnell and other Republicans at the June Koch brothers event have strong beliefs about minimum wage.

“Psychology shows that is the main recruiting ground for totalitarianism, for fascism, for conformism, when people feel like they’re victims. So the big danger of minimum wage isn’t the fact that some people are being paid more than their valued-added — that’s not great. It’s not that it’s hard to stay in business — that’s not great either. But it’s the 500,000 people that will not have a job because of minimum wage, because there is no such thing as a dead end job. As Martin Luther King said: ‘[Inaudible] every job is an opportunity,’” Richard Fink, a top Koch brothers strategist, said at the event. “And now what to do with them. We’re taking these 500,000 people that would’ve had a job, and putting them unemployed, making dependence part of government programs, and destroying their opportunity for earned success. And so we see this is a very big part of recruitment in Germany in the 20s. When the Germans were crushed by World War I, the Allies put a very strong settlement on that. They lost their meaning in life.”

The comparison of a minimum wage increase and socialism exemplifies the disconnect between politicians, wealthy Americans, and average voters — and that disconnect has been well documented. Since wealthy Americans have far more influence on policy-making than the average American voter, that means important issues, like minimum wage, are not being legislated at the national level. But, at the state and local level, November’s elections could profoundly change the direction of the minimum wage debate.

For the Koch brothers, who are worth a combined $68 billion, their Super PAC Americans for Prosperity, and the politicians it supports, the current system in America “destroys value, raises costs, hinders innovation, and relegates millions of citizens to a life of poverty, dependency, and hopelessness,” as Charles G. Koch wrote in a April opinion piece for The Wall Street Journal. “The central belief and fatal conceit of the current administration is that you are incapable of running your own life, but those in power are capable of running it for you. This is the essence of big government and collectivism.” As longtime libertarians, the brothers support lower personal and corporate taxes, minimal social services, and less government oversight — concerns that dovetail with the their corporate interests. According to that logic, increasing minimum wage is an obstacle to prosperity, but the numbers indicate most Americans do not share that belief.

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