Wednesday, March 01, 2006

Wages: Minimum and Living

More and more, cities and states are stepping in to address issues that traditionally would have been the province of the federal government.

Last June, we wrote about the then 170 city mayors who had signed on to carry out the Kyoto Accord, an international environmental agreement that would reduce heat-trapping gas emissions. President George W. Bush stonewalled the accords, so the mayors, both Democrats and Republicans, took matters into their own hands.

Unfortunately, Mayor Willie W. Herenton didn’t join his counterparts in this coalition, but this year, he gets another chance. This time, the issue is wages.

And while the conventional lethargy of the public sector may come to define this issue, too, this time around, state legislators are getting into the act. Several bills are pending in the General Assembly to increase the minimum wage from its national mandatory level of $5.15 to as high as $7.15 as a state mandatory level.

Tennessee is one of only a half dozen states without their own mandatory minimum wage laws, but to this point, only 18 of them have set the amount above $5.15, and unsurprisingly, none of them is in the South. (The 18 states do, however, represent nearly one-half of the U.S. population.)

It has created some unlikely advocates. These include politicians with national profiles - New Mexico Governor Bill Richardson (D) and California Governor Arnold Schwarzenegger (R).

It seems that while Democrats are working hard to look tougher on national security issues in an effort to blunt Bush’s last issue of strength, Republicans are invading the Democrats’ stronghold by appealing to the working class. Schwarzenegger for example called for a $1 increase in California’s minimum wage to $7.75 an hour, and despite earlier resistance, he even seems to be weakening on indexing increases to inflation.

The National Conference of State Legislatures predicts that the minimum wage will be one this year’s hot issues, and that as many as 30 states will contemplate their own legislation on the minimum wage.

At the national level, business interests have blocked any momentum for a minimum wage increase, although the current amount was set nine years ago. (In the meantime, the Congress has expressed its concern about wages, raising its own salaries seven times.) And with recent reports that the salaries of young workers are declining and that family earnings are headed in the wrong direction, state legislatures are jumping on minimum wage as a powerful populist issue.

Taking a lesson from the Religious Right, which manages to concoct a yearly vote on something dealing with gays to get out their base vote (last year, it was protecting the sanctity of marriage, and this year, it appears to be prohibiting gay adoptions, although we guess lesbian couples will be allowed to keep their own babies), more mainstream political interests are looking to the minimum wage as a GOTV issue for themselves.

The Democratic thinking is that minimum wage is an issue that drives minorities and the poor to the polls. But it seems to drive much more than the Democratic base. A Pew Research Poll reported that almost 90 per cent of Americans support the raising of the national minimum age to $6.45. It’s also worth noting that two years ago, the Florida minimum wage increase was supported at ballot by 71 percent of the voters, running ahead of John Kerry by 23 percent in that sate.

As expected, there is competing research that enables all sides to claim the statistical high ground. Leading the opposition to minimum wage increases is the Employment Policies Institute, whose argument goes something like this: an increase is bad because it attracts higher income teenagers who force out low-skilled adult workers.

If that isn’t enough to suggest a political tin ear, its officials have even said that most Tennesseans who would be helped by a minimum wage live at home, live alone or live with a working spouse.” We can’t quite see why the group finds this such a compelling argument, since it’s a bit reminiscent of those days when women were paid less than men because “he’s got a family to support.”

More tangibly, opponents can make the case that only about 13 percent of the cost of the minimum wage will go to poor families. It’s an attempt to undercut the high moral ground out from under those supporting the increase and suggesting that their motivation isn’t really concern for the working poor. It seems unlikely to have traction because most of us can remember when we were being paid minimum wage or see our children now earning that salary, making it a close to home issue.

Meanwhile, back in Memphis, we continue to grapple with the living wage issue. City Council has dragged its feet on this issue, but like so many issues that dissipate with time, this one is not going away, particularly as long as tax freezes are handed out as casually as they are by city and county governments.

The Living Wage Campaign is calling on the City Council to pay its workers $10 an hour with health insurance or $12 an hour without insurance. In addition, it makes the case that if companies are going to have their property taxes waived, they should at least agree to pay a living wage to their workers in return. The $10 an hour would bring a family of four to the federal poverty level.
The campaign has enlisted no less an authority to their cause than the widely respected economist David Ciscel of University of Memphis. His 1999 white paper, “What Is a Living Wage for Memphis?” articulates the case convincingly and serves as the Bible for the campaign. Also, he is the “truth squad” for the movement, correcting the misstatements by City Hall functionaries fighting the living wage notion.

“The Living Wage is a concept that allows us to measure the level of income required for a family to live independent of monthly public assistance, food stamps, childcare subsidies, and rent subsidies,” Dr. Ciscel wrote in this report. “…The Living Wage assumes a bare-bones budget. It allows for necessities, not luxuries, and it is not the same as traditional poverty thresholds.”

This particularly makes good sense when applied to companies receiving tax freezes. Why should our own local governments waive taxes for companies who pay salaries so low that the local governments then have to increase social and human services to take care of these companies’ workers?

Incredibly, city and county governments have people on their payroll beging paid less than the living wage. In late 2004, there were 226 people in city government paid less than the living wage. When county government contemplated a policy to raise all wages just to the poverty threshold in the late 1990’s, the money was directed instead for “salary adjustments” for higher paid employees.

Memphis city government was silent when so many of its metropolitan peers were signing on to the Kyoto Accord. Let’s hope that on the living wage, it can finally find its voice.


BraveCordovaDem said...

I am in total agreement with the concepts laid out in this blog. I have also read the Ciscel Report and am both professionally and personally aware of the devastating effects that poverty level wages and especially lack of health coverage have on individuals and families.

However, Ciscel, SCM, and everyone else who has addressed this can’t seem to get past the City limits. As you have pointed out over and over, we are a metropolitan area with increasing interdependence. Memphis also has severe bleeding of both jobs and revenue to the suburbs.

The “living wage” proposal would directly affect City workers and those contractors and other beneficiaries of the City. However, there would be probable pressures on other private employers in the City to follow suit which is, on the surface, very good. However, what effect will that have on City growth? Will existing companies begin to look at expanding out of Memphis? Will retailers and small businesses be more inclined than ever to relocate to the suburbs, thus reducing sales tax revenue and property tax revenue even more? Will there still be lots of low wages jobs, only individuals will have to drive farther to get to them? Why has there been no push to expand this to County government, State government, or to suburban municipalities?

Would Living Wage help a few hundred individuals but end up devastating the City of Memphis? I hope that there would no ill effects for Memphis by adopting Living Wage but I would hope that these potential effects would at least be studied before adopting it.

BraveCordovaDem said...

Also, Ciscel might want to look at his own place of employment. The U of M compensation structure allows for some of the lowest wages in town for unskilled, semiskilled, and clerical employees.

Smart City Consulting said...

We see city government as the most fertile starting point for this movement. Then the county and the state, and if the living wage could be applied to PILOTs, it would capture an awfully lot of jobs that are locating outside of Memphis.

mike said...

Governor Bredesen was just quoted on the news saying, in effect, "If the Federal government raises the minimum wage, I'll support it. But I'm not going to do anything about it on the State level." He's got a re-election coming up, don'tcha know.

Speaking as a real, live minimum wage worker, I can say that I'm not familiar with anyone in Memphis paying just $5.15 per hour. Nearly every job I'm aware of starts at $7 -- especially in fast food and other retail "service" sectors. Same for warehouse work.

It's proof of what any libertarian will tell you: left to their own devices, wages fall or rise to their natural levels. Even though Memphis businesses could be paying up to $2 less an hour, they don't because they can't. Someone else will pay more and skim the better workers off.

I've seen that happen more times than I can count. Someone who has just started a job with me will quit a few weeks later to take a job paying a nickel or dime more per hour somewhere else. No warnings, no regrets. Just gone.

Part of Memphis' problem -- something which SMC attempts to address -- is that a too-large part of our population has been mal-educated. We don't produce quality, well-educated workers. We've also hitched our wagon to the transportation industry, not a hot-bed of high wage work.

Put visually, our pyramid of workers has too broad a base. Too many workers that aren't worth much. That makes it bottom heavy and it won't reach very high. A smaller bottom (more well-educated workers with higher aspirations than just getting by) means a taller pyramid. An obelisk, if you will.

Efforts like the biotech foundation are a good idea, but you'll end up bringing in the workers from other parts of the country in the near term, and not bringing up the workers we have here, who aren't up to the demands of the job. The inequity will continue.

Now, if you ae trying to make health care affordable to the masses, which has become an important corollary to the "living wage" movement, then I'd suggest finding ways to remove the insurance companies (and their profit motives, and profit skimming). Insurance takes billions of dollars out of the health care industry every year, money that could go directly to doctors, nurses, etc. They interpolate themselves into the doctor-patient relationship and deform it.

But that's another post entirely. ;-)

membase said...

I second much of what Mike says. And while I respect Dr. Ciscel greatly as an economist (I took a class with him in my MBA program), neither he nor most of the Living Wage advocates have apparently spent much time running a business. Go ahead...try to artificially drive up labor costs beyond their true market value. What you will do is increase the incentive for a business to eliminate labor hours (i.e. jobs) to compensate for a higher per-unit cost. Alternative technology - automation - is one way to do it. You know those self-service checkout stands at the grocery store? When you only have to pay employees $6 an hour, buying a dozen of those machines to replace all the checkout clerks doesn't make financial sense. But if some government entity comes along and makes you pay $12/hour, that equation changes completely. Consequently, your underemployed clerks become unemployed, replaced essentially by robots.

Mike was right in his post in calling attention to our poorly-educated (and poorly motivated) workforce. This is truly the root of the problem. When Memphis finds a way to produce, or attract, the nations highest-quality workers, wages and salaries will go up because those workers are in demand, and demand drives prices up. Our employees in Memphis are just not in demand. No matter how much you try to force "big business" to sacrifice profit and pay more for labor than what it's worth, the laws of economics will win out every time. Raise the minimum wage, and businesses will just raise prices or slash payrolls. Put in price controls, and they'll move elsewhere or go out of business - then you can look forward to more unemployment and shortages of desired goods and services.

As much as I try to avoid political stereotyping, you make it all too obvious by using partisan catch-phrases (Religious Right and so forth) that you are merely reading the Democratic Party's talking points. When I first found your blog a few weeks ago, I hoped for something fresh and objective - somebody that doesn't just blindly accept the propaganda of either political party. I guess I'll have to look elsewhere.

membase said...

Smart City said..."We see city government as the most fertile starting point for this movement. Then the county and the state, and if the living wage could be applied to PILOTs, it would capture an awfully lot of jobs that are locating outside of Memphis."

Smart City, why would a business ever be motivated to move to a city that requires it pay HIGHER wages? I don't recall anything in my business school curriculum about maximizing costs and minimizing profit.

Smart City Consulting said...

membase: We do of course have a point of view, but we do our own research and use no one's talking points. That said, if you're looking for a blog to praise the Religious Right or even give them credence, you definitely need to look elsewhere. SCC

mike said...

Membase repeated: "Smart City said..."We see city government as the most fertile starting point for this movement."

Of course you do! You only have to convince a double-handful of politicians to go along to have sweeping effects, as opposed to convincing one company after another after another until a snowball effect builds up. Who wouldn't prefer that?