(Update) Raise the minimum wage!

Posted by AzBlueMeanie:

The Cronkite News Service reported this week that Arizona’s hourly minimum wage going up by 10 cents for 2014:

Screenshot-8Under a law Arizona voters approved in 2006, Katherine Castillo and others earning minimum wage will receive a 10-cent-per-hour increase to $7.90 starting Jan. 1. For tipped workers, the state minimum wage will rise from $4.80 to $4.90 per hour.

It will mark the fourth straight year that Arizona has had a higher minimum wage than the federal hourly rate of $7.25, which has remained the same since 2009.

Unfortunately, like all reporting about the minimum wage, the reporter allowed the spokespersons for industries that exploit workers by paying extemely low wages to comment on the minimum wage, without ever challenging their boilerplate talking points:

Rick Murray, CEO of the Arizona Small Business Association, said the law hurts the state’s workforce because it goes against the ideals of a business where wages depend on the demand of a certain skill.

“I’m against the fact that the minimum wage is mandated by the government when it should be market-driven,” he said.

Steve Chucri, president and CEO of the Arizona Restaurant Association, said that raising the minimum wage forces higher operating costs on the food industry can lead to layoffs.

“A dime here and a nickel there may seem innocuous to most people,” Chucri said, “but restaurants cannot simply raise menu prices. It’s too competitive of an industry.”

Brad Flahiff, director of development at Barnett Management Co., which operates Burger King franchises in Arizona, said that constantly increasing the minimum wage hurts employees as well as employers.

“It harms the people who are doing better and those who either don’t have those skills yet or are not performing at the same level,” he said. “And yet we are forced to reward them the same way.”

This is, of course, bullshit. What else would you expect from industries that rely on the exploitation of workers?

The Burea of Labor Statistics has been collecting data on the minimum wage and its effects since first enacted in 1938. Earlier this year, the Center for Economic and Policy Research presented a meta-data rich report on the minimum wage entitled, "Why Does the Minimum Wage Have No Discernible Effect on Employment?" PDF. From the press release:

A new paper from the Center for Economic and Policy Research finds that modest increases in the minimum wage – such as the one proposed by President Obama in his State of the Union address – have little impact on employment, due to adjustments by employers and workers. The paper, “Why Does the Minimum Wage Have No Discernible Effect on Employment?” by economist John Schmitt reviews evidence on eleven possible adjustments to minimum-wage increases that may help to explain why the measured employment effects are so consistently small. It finds that the strongest evidence suggests the most important adjustments are: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ("wage compression"); and small price increases.

This is one of the most studied topics in economics, and the evidence is clear: modest minimum wage increases don’t have much impact on employment,” Schmitt said. “An increase to $9.00 per hour would be hugely important for the workers getting it, but the idea that this would lead to less employment is just not supported by the evidence.”

President Obama’s call for a minimum wage rise to $9.00 an hour would be a modest increase, and would keep the minimum wage below its peak, when adjusting for inflation. As CEPR’s Dean Baker and Will Kimball noted in a blog post yesterday, “The purchasing power of the minimum wage peaked in the late 1960s [1968] at $9.22 an hour in 2012 dollars. That is almost two dollars above the current level of $7.25 an hour.” They also noted that the minimum wage has not kept pace with productivity increases over the past 44 years, as it had from 1947-1969 – a period when economic “[g]rowth averaged 4.0 percent annually” and “the unemployment rate for the year 1969 averaged less than 4.0 percent.” But the link between productivity growth and minimum wage ended in the 1970s.

Baker and Kimball note that “If the minimum wage had kept pace with productivity growth it would be $16.54 in 2012 dollars.”

Schmitt’s paper notes that “two recent meta-studies analyzing [scores of separate studies] conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.” The paper concludes that the most likely reason for this is that “the cost shock of the minimum wage is small relative to most firms' overall costs and modest relative to the wages paid to low-wage workers.”

Min-wage-2013-02-fig-1

The paper notes that employers have many channels of adjustment to a minimum wage increase, including reducing hours, non-wage benefits, or training; shifting the composition toward higher skilled workers; cutting pay to more highly paid workers; taking action to increase worker productivity (from reorganizing production to increasing training); increasing prices for consumers; or firms simply living with a smaller profit margin.

The paper notes that “Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.”

Now, there are marginal employers who may go out of business if they have to pay higher wages. But this is part of the process of creative destruction and eliminating market inefficiencies in a capitalist society — something conservatives and Republicans claim to support.

Senate Democrats are preparing to vote on the Harkin-Miller bill, also known as the Fair Minimum Wage Act, which would raise the federal minimum wage to $10.10 an hour, from its current $7.25. As I posted previously, "If the current federal minimum wage of $7.25/hour was inflation adjusted to 1968 dollars, when the minimum wage was at its peak in real value, it would have to be raised to $10.74/hour. Raise The Minimum Wage."

This modest increase is still well below the peak purchasing power of 1968, and nowhere close to keeping pace with productivity growth — back in the days when businesses shared their success with their employees, instead of paying outrageous compensation to corporate executives at the expense of their employees.

I would encourage organized labor in Arizona to pursue an initiative in 2014 to adjust our voter-enacted minimum wage law to use the peak purchasing power of the minimum wage in 1968 as the basis, adjusted for inflation to current dollars. The cost of living adjustment (COLA) provision already in the law will automatically adjust to future increases.

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