Minimum Wage Proposals Spark Disagreement

by Mark Friedman  on Monday, Mar. 10, 2014 12:00 am  

The Rev. Steve Copley, chair of Give Arkansas a Raise Now, said increasing the state’s minimum wage to $8.50 an hour will help more than 168,000 Arkansas workers.  Montine McNulty, executive director of the Arkansas Hospitality Association, said that if the minimum wage rises, restaurant owners would have two choices: lay off workers or raise the menu prices. (Photo of Copley by Jason Burt)

The Rev. Steve Copley said eight years is too long for Arkansas’ low-wage workers to go without a raise.

Copley of Little Rock is leading a coalition to get a ballot initiative in front of voters in November to gradually increase Arkansas’ minimum hourly wage from $6.25 — $1 below the federal minimum — to $8.50 by 2017.

“The problem we face now is that 160,000 people are working hard,” said Copley, who is chair of Give Arkansas a Raise Now. “They’re playing by the rules. They just can’t make ends meet.”

But whether raising the minimum wage — a burning issue in the tourism and hospitality industries — will actually help all the people it’s aimed at is a question of deep disagreement, even among experts.

There does appear to be, however, consensus on the minimum conditions necessary to have a sustainable economy.

Michael Strain, an economist at the American Enterprise Institute of Washington, D.C., said the goal should be that anyone who works full time and heads a household should make enough money to escape poverty.

Kathy Deck, director of the Center for Business & Economic Research at the University of Arkansas, agreed.

“We would all like to see people who work hard and work full time have enough money to live,” she said. “That seems like a reasonable goal. The challenge is to have an economy that allows that to happen.”

But whether directly increasing wages is the best path is not at all clear. Deck and Strain both said a better way to help the poor is to raise the federal earned income tax credit, a variation on the idea of a “negative income tax” that has traditionally been championed as a conservative alternative to raising the minimum wage.

“That’s a little more effective and a little less distortionary to business,” Deck said.

The earned income tax credit provides cash through the federal income tax system to low- and moderate-income families based on their earnings. The maximum credit in 2014 was $5,460, according to a February Congressional Budget Office report.

Raising the Minimum Wage

The problem with the minimum wage, from the perspective of the low-wage worker, is that it helps only the people who maintain their jobs. “But likely, businesses will demand fewer workers at that wage,” Deck said.

Montine McNulty, the executive director of the Arkansas Hospitality Association, said she thinks jobs will dry up if the minimum wage is increased.

“By making entry-level employees more expensive for somebody to hire, we could just end up with a higher unemployment rate,” said McNulty, whose association represents the restaurant and lodging industries in Arkansas, major employers of low-wage workers.

A quarter of the workers across the country who were making the federal minimum wage in 2011 were in jobs tied to food preparation and service, according to the latest figures from the U.S. Bureau of Labor Statistics.

The debate over the pay in Arkansas comes at a time when President Barack Obama supports raising the federal minimum wage even more, to $10.10. A vote on the issue is expected in the U.S. Senate by early April, said Arun Ivatury, campaign strategist for the National Employment Law Project of Washington, D.C., which is lobbying for the higher federal minimum wage.

“Certainly from our organization’s perspective — and the bill’s champions on both sides of the Senate and the House, as well as the president, have all made very clear that they think $10.10 is a right number. It puts a family of three over the poverty line,” he said. “There’s no reason we should go below that.”

But if the minimum wage climbs to $10.10 in the second half of 2016 as proposed, the Congressional Budget Office’s projection lays out starkly the bad news and the good news:

• On one hand, total employment would likely be reduced by about 500,000 jobs. That's less than half of a percent of the 145.2 million people currently employed in the U.S., but several months' worth of job growth at the recent sluggish pace.

• On the other hand, 16.5 million hourly-wage workers would see their earning increase, and a $10.10 minimum would raise most of their family incomes above the federal poverty threshold.

The CBO report also tackled the question of the earned income tax credit.

"To achieve any given increase in the resources of lower-income families would require a greater shift of resources in the economy if done by increasing the minimum wage than if done by increasing the EITC," the report said.

And, the CBO noted, "an increase in EITC would go almost entirely to lower-income families."

Despite the debate, the push for increasing the minimum wage is gaining momentum across the country.

In November, voters in New Jersey approved raising that state's minimum wage by $1 to $8.25 an hour, making it the fourth state to increase its minimum wage in 2013, according to a news release from Raise the Minimum Wage, which is a division of the National Employment Law Project.

Arkansas is one of only nine states that have a minimum wage below the federal rate. Another 21 states have a minimum wage above the federal minimum wage of $7.25 an hour.

Impact on Low-Wage Workers

It’s unclear how many Arkansans make exactly $6.25 an hour. For an employer to pay that rate, one of the criteria is that the business can’t have more than $500,000 in annual revenue.

The U.S. Bureau of Labor Statistics showed Arkansas had 49,000 workers out of 746,000 hourly workers who were paid the federal minimum wage or below it in 2011, which are the latest figures available. Arkansas’ total workforce is about 1.14 million.

But increasing the minimum wage also raises wages for workers who make slightly more than the current minimum but less than the proposed new minimum. Arkansas Advocates for Children & Families of Little Rock said that raising Arkansas’ minimum wage to $8.50 would help more than 168,000 workers.

“The majority of people who would benefit from a minimum wage increase are not teenagers working part time to earn extra spending money in their free time,” Eleanor Wheeler, the senior policy analyst for AACF, wrote in a January report. About 85 percent of the workers who would see their minimum wage rise are 20 years old or older, Wheeler wrote.

“In fact, most workers who would see change from this legislation work mid- to full-time jobs and are at least 30 years old,” she wrote.

Rich Huddleston, executive director for AACF, said raising the minimum wage also would benefit businesses by lowering employee turnover and improving productivity.

Rev. Copley, who is leading the charge to increase the wage, agreed with Huddleston that the workers would be happier with the higher hourly wage and be more productive.

Copley said he is working on collecting about 62,500 valid signatures by July 7 to get the proposal on the ballot in November. He said he expects the campaign to cost about $300,000.

“We’re in the early stages, so we haven’t seen that much money come in” to fund the campaign, Copley said.

If the initiative were to get on the ballot and then be approved, the state’s minimum wage would rise to $7.50 on Jan. 1, then to $8 on Jan. 1, 2016. On the first day of 2017, the wage would climb to $8.50 an hour. It would stay at that rate until another ballot measure or the Legislature raised it.

The last time Arkansas’ minimum wage was increased was during a special session in 2006, when the Legislature, under pressure from a similar petition drive, increased it from $5.15 an hour to $6.25.

“We didn’t hear of any jobs loss as a result of the increase” in 2006, Copley said.

Others agreed.

“Most research on the effects of increases in minimum wage finds that the change in jobs after a minimum wage increase is either zero of very close to zero,” said Wheeler of the AACF in her report.

She pointed to a study by two Princeton University economists, David Card and Alan Krueger, who studied fast-food restaurants along the New Jersey and Pennsylvania border before and after New Jersey raised its minimum wage in 1992 while Pennsylvania didn’t.

“We find no indication that the rise in the minimum wage reduced employment,” Card and Krueger said in their report.

Some companies already have announced that they are raising the minimum wage for their hourly workers.

The Gap Inc., the apparel retailer based in San Francisco, said on Feb. 19 that it would increase the minimum hourly rate for its employees to $9 an hour this year and $10 next year. About 65,000 of its store employees will get raises.

“To us, this is not a political issue,” Glenn Murphy, The Gap’s chairman and CEO, said in a letter to employees that was published on the company’s website. “Our decision to invest in frontline employees will directly support our business, and is one that we expect to deliver a return many times over.”

Businesses’ Concerns

McNulty, of the Arkansas Hospitality Association, said that if the minimum wage rises, restaurant owners would have two choices: lay off workers or raise the menu prices.

She said the profit margins at a typical restaurant are only about 3-4 percent.

In fact, waiters are paid only $2.63 an hour by the restaurant because they get to keep their all of their tips, McNulty said. But if they don’t make the minimum wage with their tips included, the restaurant has to pay the waiter the minimum wage.

“Most of them make much more than the minimum wage,” she said.

The Arkansas State Chamber of Commerce and the Associated Industries of Arkansas are monitoring the issue but haven’t taken a position on the state minimum wage issue, said Andrew Parker, director of governmental affairs for the agency.

But it does have some concerns that a minimum wage increase will hurt the hospitality industry and first-time employees, Parker said.

Wal-Mart Stores Inc. of Bentonville hasn’t taken a position on the federal minimum wage, but it is monitoring the proposals, said Brooke Buchanan, a spokeswoman for Wal-Mart.

Wal-Mart is the country’s largest private employer with about 1.3 million American workers.

“Wal-Mart is not a minimum-wage employer,” Buchanan said. “Less than 1 percent of our associates actually make minimum wage.”

The National Retail Federation of Washington, D.C., though, is opposed to raising the federal minimum wage.

“It’s inevitable that when you force companies to raise wages, jobs are lost and ultimately the cost is passed along to the consumer,” NRF Senior Vice President Bill Thornen said in an email to Arkansas Business. “Just when the economy seems to be showing signs of recovery, it makes absolutely no sense that the government would seek to enact such a sweeping change that would seriously impact business owners, especially small businesses.”

Economists Weigh In

Economists are mixed on what the impact of raising a state’s minimum wage will be on low-wage workers and businesses.

“There’s been some good research that suggests that raising the [federal] minimum wage doesn’t have an impact on state-level poverty,” said Michael Strain, an economist at the American Enterprise Institute of Washington, D.C., which produces research for policy issues. “There’s been some other research that suggests that it does.”

Businesses would probably see more productivity because their employees will work harder at the higher wage, he said.

Still, it might hurt the low-wage workers because employers will probably slow the rate at which they hire, Strain said.

In addition, companies might in-crease prices to deal with their rising employment costs. That would hurt lower-wage workers because they are the ones who typically shop at the businesses that employ lower-wage workers, Strain said.

“You’re giving the wallet a hit one way or the other,” he said.

 

 

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