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Should We Be Talking About Living Wages Now?

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Should We Be Talking About Living Wages Now? < Making Sense Should We Be Talking About Living Wages Now? By Jeannette Wicks-Lim he Department of Labor an- Tnounced in January that the U.S. economy shed 2.8 million jobs in 2008, bringing the national unemployment rate to 7.2%—its highest level in 16 years. In today’s economic climate, the worst since the Great Depression, are the raises demanded by living-wage campaigns a luxury? Should living- wage campaigns take a back seat to pulling the economy out of recession? For many, the answer is no. Campaigns across the country contin- ue to build on the widespread success of a movement that has put into place more than 140 living-wage laws since the mid-1990s. Take the Hartford © iStockphoto.com Living Wage Task Force in Connecticut, which is trying to expand the number of workers guaranteed a living wage under its original 1997 law. Or Santa Fe’s Living Wage Network, which fought for, and won, a cost-of-living Survey of American Families, nearly hour. The living-wage ordinances increase to its living wage rate for two-thirds of people in households enacted in recent years have typically 2009. Or the Nashville Movement in with incomes above the poverty line required rates in this range—on Tennessee, a group laying the ground- but below twice that level reported average $10.80, or about 50% above work for a campaign to establish a serious economic hardships—failing the federal minimum wage. brand new ordinance. to pay their rent, having their phone These basic budgets, however, They are right. Today’s economic disconnected, worrying about running leave out not only extras such as res- turmoil challenges us to create prac- out of food, or relying on the emer- taurant meals, but also essential, if not tical policies to meet the heightened gency room for routine medical care. immediate, items such as savings for imperative of living wages, not to Consider a more realistic poverty education, retirement, or even emer- abandon them. line: the “basic budget” thresholds gencies. Any cut in hours or spell of developed by the Economic Policy unemployment can immediately com- hy do we need living-wage cam- Institute as a measure of the income promise these families’ ability to meet Wpaigns? Let’s consider first the required for “a safe and decent stan- their basic needs. Unfortunately, these current legal wage floor. At $7.25 per dard of living.” These range between will be all-too-common occurrences in hour, the federal minimum wage as of two and three times the official pover- today’s economic climate, which will July 2009, a full-time year-round work- ty line depending on local living costs expose the lowest-paid workers to in- er will bring home $15,080—less than such as housing. For a family of three, creasingly severe hardships. This is be- the official poverty threshold of a full-time year-round worker would cause businesses tend to let the wages $17,330 for a family of three. need to earn between $16 and $24 of the lowest-paid workers stagnate Moreover, poverty experts roundly an hour to reach these basic budget or fall unless prodded by a minimum- criticize that official poverty line as thresholds. Two workers would each wage hike or a near-full-employment too severe. According to the National need to earn between $8 and $12 per economy. In the 1980s, for instance, 10 l DOLLARS & SENSE l MARCH/APRIL 2009 MARCH/APRIL 2009 l DOLLARS & SENSE l 11 < Making Sense the federal minimum wage remained hike with a 3% price increase, say, the same for ten years. Over this period, 60¢ on a $20 meal. Unsurprisingly, the the lowest-paid workers saw their real city’s new wage floor appears to have (i.e., inflation-adjusted) wages fall by 15%. had no negative impact on jobs. In other words, to put living-wage Even in today’s sharp downturn, campaigns on hold would not simply businesses can likely absorb similar mean that conditions for low-wage minimum-wage hikes. To see this, con- workers and their families would not sider that U.S. restaurant sales rose by Without mandates improve. Instead, these families would 2.8% between November 2007 and tying funding to living- face worsening economic hardships. November 2008, almost two percent- age points faster than inflation. This is wage requirements, ut perhaps that’s inevitable during despite a 5% rise in restaurant prices private sector Ba recession. Today, with economic over the same period. In other words, indicators falling by the day, can busi- overall sales in this sector grew, albeit businesses that are the nesses afford to pay a living wage sluggishly, even as restaurants raised main focus for job without slashing jobs? their prices and the recession deep- We can learn from the experience ened. creation are unlikely to of New Jersey’s state minimum-wage Based on the Santa Fe experience, hikes in the early 1990s: from $3.35 to and using extremely pessimistic as- pass some of that $3.80 in 1990, then to $4.25 in 1991, sumptions about future sales trends, stimulus money along and finally to $5.05 in 1992. These I estimate that a 20% minimum-wage three raises, about 10% to 20% each, hike would require, as before, just a in the form of raises amounted to a 40% overall rise in the 3% price increase to cover these busi- for their lowest- wage floor once adjusted for inflation. nesses’ higher costs. The first hike took place in April 1990 What can living-wage campaigns paid workers. when the economy was nearing a busi- draw from these experiences, given ness cycle peak. The second that transforming a minimum wage and third hikes, however, into a living wage requires more took place on the heels of dramatic raises on the order of 50%? the 1990 recession. Econ- An obvious possibility is to structure omists studied their effects a living-wage ordinance as a series of extensively among the raises, 10% to 20% each, which gradu- businesses likely to be hit ally achieve an adequate living-wage hardest—fast-food restau- rate. An added precaution may be in rants—and found no sig- order since we simply do not have nificant negative impact extensive data on the impact of mini- on employment. mum-wage hikes during similar eco- One reason businesses nomic conditions: each raise could can absorb these costs is be followed by a year of evaluation, that for most, minimum- used in turn to adjust future raises up wage hikes require only or down. This, by the way, is another modest adjustments. For lesson Santa Fe’s experience offers: © iStockphoto.com example, in 2003 Santa Fe the city required exactly such an passed an $8.50 citywide minimum evaluation before raising its initial wage. The average low-wage worker, $8.50 minimum to $9.50 in 2006. who earned $6.91, received about a 23% raise. The resulting cost increases o turn the economy around we for restaurants—the most heavily Tneed a significant boost in eco- affected businesses—equaled 3% of nomic activity—an increase in the their sales revenue. In other words, a demand for businesses’ goods and typical restaurant could offset the en- services, not minor adjustments to tire expense of the minimum-wage business costs. This is the logic 12 l DOLLARS & SENSE l MARCH/APRIL 2009 MARCH/APRIL 2009 l DOLLARS & SENSE l 13 tgfc ad dollars and sense.qxd 1/16/2009 11:00 AM Page 1 < Making Sense new from MONTHLY REVIEW PRESS behind President Obama’s stimulus living-wage laws provide a model: package. these laws impose living-wage require- Widespread public support for ments on businesses that contract raising minimum-wage rates (in 2006, with, or receive subsidies from, local more than 60% of voters in six states governments. Today’s economic crisis highlights A typical Santa Fe the vulnerability of the lowest-paid workers and virtually ensures that their restaurant could offset living standards will worsen. These facts compel us to pursue living-wage the entire cost of the policies with even greater force. Two city’s 2003 minimum- policy prescriptions are especially im- portant. First, the economic recovery THE GREAT wage hike with a 3% plan, with its extensive government FINANCIAL CRISIS price increase, say, subsidies, provides a tool to impose living-wage requirements. Second, a Causes and Consequences 60¢ on a $20 meal. broader, longer term living-wage poli- cy of multi-step raises guided by inter- passed state minimum-wage hikes) im economic impact studies will allow John Bellamy Foster suggests, however, that we want not us to sensibly wean our economy off and Fred Magdoff only decent schools, decent medical of poverty wages. Past experience tells care, decent roads, and a decent envi- us that our economy, even today, can “The financial crisis of 2007-08, and ronment, but also decent-paying jobs. adjust to such a policy. D&S with more certainly in store for 2009 To create such jobs, living-wage re- and beyond, is one of the great calami- quirements must be tied to the stimu- Jeannette Wicks-Lim is an economist ties of modern neoliberal capitalism. lus plan’s funding. Without such man- at the Political Economy Research But it should come as no surprise for dates, private sector businesses that Institute, UMass Amherst and co-author regular readers of John Bellamy Foster are the main focus for job creation are of A Measure of Fairness: The Econ- and Fred Magdoff’s writings over the unlikely to pass some of that stimulus omics of Living Wages and Minimum past few years in Monthly Review.
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