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Tuesday, February 9, 2016
This is the first in a three-part series on minimum wage
- “Supersize my salary now!” The refrain rose over a busy street outside a McDonald’s in downtown Seattle.
A young African-American mother carrying a little girl told the largely youthful crowd that she had walked off the job to join them because “we’re getting tired of being pushed around”. Her five-year-old took the microphone in both hands with a big grin and led a spirited chant: “We’re fired up, can’t take it no more!”
Green signs sported a hashtag, “Strike poverty 5-15-14 #FastFoodGlobal”, red T-shirts reasoned “Because the rent won’t wait – 15 now”, and a blue banner exhorted “15 dollars an hour plus tips. Don’t steal our wages.”
A few hundred ethnically-diverse demonstrators filled a sunny afternoon with demands that fast-food chains pay a living wage. Seattle City Council member Kshama Sawant said that workers in over 150 cities, including her hometown of Mumbai, India, had walked off their jobs that day.
Fast-food worker Sam Laloo spoke: “I believe in this movement because I’m trying to save enough to go to college and better myself. And I can’t go to college because I don’t make enough money. So it’s a Catch-22.”
According to the organisers, the protest was linked with fast-food worker actions in over 30 countries by coalitions of worker centres, labour unions, community groups and faith organisations.
This prosperous Pacific Northwest seaport, though, is the place in the U.S. closest to actually raising the minimum wage for all workers to something approaching a living wage. From the current Washington state minimum wage of 9.32 dollars an hour — already the highest in the country — Seattle’s mayor, city council, and a majority of citizens according to some polls all support ratcheting up the wage over 60 percent to 15 dollars.
The debate now centres on how long the ramp-up period should be for different-size businesses and non-profits, whether benefits and tips will be included in the wage, and other implementation details.
Seattle would seem a promising test case for these efforts. Home to Boeing, Microsoft and Amazon, the metropolitan area boasts relatively low unemployment and burgeoning technology jobs with good salaries. The electorate votes heavily Democratic and organised labour wields some influence.
Nationally, President Barack Obama has proposed an increase in the federal minimum wage. Democrats introduced legislation in both houses to raise it from the current 7.25 dollars an hour to 10.10 dollars an hour over two years, and index it to inflation thereafter. Recent national polls show strong support for the raise, even among conservatives. But the proposal was filibustered by Senate Republicans, throwing the initiative back to states and localities.
From its establishment in 1938 through 1968, the national minimum wage roughly tracked inflation and productivity.
But sporadic increases since then have failed to keep up with prices, leaving the current inflation-adjusted wage below its 1968 high.
Meanwhile, the standard has fallen far behind productivity growth: had it kept pace, by 2012 it would be nearly three times as high, 21.72 dollars instead of 7.25.
To bypass the federal stalemate, state and local efforts to raise minimum wages have proliferated since the 1990s. Twenty-six of the 50 states have raised or are raising their base wages above the federal level, with increases scheduled in eight states and the District of Columbia.
More than 120 cities have also raised their benchmarks, and efforts are underway in San Francisco, Oakland, Los Angeles, San Diego, Chicago, New York and Portland, Maine.
This resurgent movement to raise the floor of the labour market is surfing the zeitgeist of renewed international debate on economic inequality.
“Capital in the Twenty-First Century”, the chef d’oeuvre of French economist Thomas Piketty, has levitated to number one on the New York Times non-fiction bestseller list. Piketty documents “forces of divergence” in modern capitalism driving current levels of wealth concentration unequalled since the 1920s. To remedy some of the “potentially terrifying” consequences, he proposes a global tax on wealth.
Piketty is no prophet crying in the wilderness. Institutions as influential as the International Monetary Fund (IMF) and the U.S. Federal Reserve Bank have joined the chorus. IMF managing director Christine Lagarde has flagged growing income inequality as a threat to stability, and called for policies to reduce poverty and advance “inclusive” growth.
Fed chair Janet Yellen has called “a huge rise” in income inequality “one of the most disturbing trends facing the nation”.
Both the IMF and the Organisation for Economic Co-operation and Development have recently recognised that moderate minimum wage raises may be beneficial.
As a non-fiscal policy not requiring direct outlays by cash-strapped governments, minimum wage hikes have proven attractive even to some on the right.
The Economist magazine, a British champion of market hegemony, has swung from opposition to grudging acceptance that measured minimum wage increases can do more good than harm. Another business-friendly voice, the U.S. news service Bloomberg, has editorialised in favour of raising the national minimum.
Conservative British Finance Minister George Osborne recently advocated an increase in the U.K. base wage. And centre-right Chancellor Angela Merkel approved Germany’s first minimum wage legislation in April, setting the benchmark at 8.50 euros (11.75 dollars) in 2015.
As the minimum wage in much of the U.S. falls ever farther behind the economy, labour-market undertows have constrained increasingly older and more-educated workers to take low-wage jobs.
Nevertheless, some politicians and business groups confront each proposed minimum wage increase with a chorus that it will destroy jobs. Historically, though, the predicted damage has yet to materialise.
After decades of experience, rigorously empirical studies have consistently found no significant effects on employment due to minimum wage increases at national, state or local levels.
Increased costs to businesses have been absorbed mainly through very small price increases. Other means of reducing costs have included increased productivity through lower turnover and absenteeism, better organisational efficiency, compression of the wage scale, and sometimes slightly reduced average hours.
These trends held even for Santa Fe, New Mexico, after its 65 percent minimum wage hike in 2004, the biggest local raise. There, increased expenses against revenues averaged around one percent for all affected businesses. The restaurant and hotel industries, which use more low-wage labour, had average cost increases of three to four percent. To cover these, a 10-dollar meal would have had to rise to 10.35.
In any case, the pertinent question is not whether any jobs are lost: it is whether affected workers end up better off after the increase.
Unlike the high-school-to-Social-Security factory jobs of a half-century ago, today’s low-wage service jobs are notoriously volatile. Involuntary and voluntary turnover is often high, and weekly hours also frequently fluctuate. From a worker’s point of view, a “lost job” usually translates into days or weeks until the next job, not a life-changing loss.
After previous minimum wage increases, even if total hours worked yearly were reduced slightly for some workers, the size of the hourly raise would nearly always ensure that their total yearly income would be higher than before the increase.
Back at the Seattle rally, council member Sawant preached to the choir: “Because of our courage, our solidarity with each other, not because of the powers that be, we have brought things to this point where 15 can become a reality in Seattle and inspire the whole nation and the whole world.”