To Raise, Or Not To Raise, The Minimum Wage (Robert Coon On Politics)

In January of this year, Arkansas Attorney General Dustin McDaniel certified the name and title of a ballot proposal that would raise Arkansas’ minimum wage incrementally over three years from the current rate of $6.25 per hour to $8.50 per hour in 2017.

The ballot proposal, submitted by the Give Arkansas a Raise Now committee, is backed by several Arkansas organizations including Arkansas Advocates for Children & Families, the Arkansas AFL-CIO, the Arkansas chapter of the NAACP and the Arkansas Hunger Relief Alliance. 

In order to qualify for the Nov. 4 general election ballot, the committee will have to gather valid signatures from 62,507 registered Arkansas voters by July 7. Having been buoyed by favorable poll numbers recently, the committee has been publicly optimistic that the measure would pass should they secure a spot on the ballot.

History of Minimum Wage
Minimum wage laws have been controversial since they first started gaining traction in the early 19th century. In fact, several of our nation’s first minimum wage laws were overturned by the U.S. Supreme Court, based on the Court’s opinion that they violated the U.S. Constitution by interfering with the rights of private parties to freely contract. It wasn’t until the landmark West Coast Hotel v. Parrish case in 1937 that the Supreme Court changed direction, upholding Washington State’s minimum wage law and paving the way for other states to follow suit. [1]

Yet the battles over minimum wage laws haven’t been exclusive to the confines of the court system. Efforts to establish new or increase existing minimum wage levels have a long history of pitting business interests against groups that represent workers, particularly organized labor. With a decision on raising Arkansas’ minimum wage potentially facing voters in November, it’s important to take a closer look at some of the typical arguments and examine the real effects that state minimum wage laws have, and don’t have, on both workers and businesses.

Raises Worker Wages, Effect on Poverty Less Clear
One of the primary arguments from proponents of a higher minimum wage in Arkansas is that Arkansas’ $6.25 minimum wage is simply not enough to live on. In a recent guest commentary for Talk Business & Politics magazine, Rev. Steve Copley calculated how economically difficult life is for a full-time hourly worker making the state minimum. An hourly employee working 40 hours a week at the state’s minimum wage would earn $13,000 per year. However, as noted in Copley’s column, many Arkansas employers are actually required to pay the federal minimum hourly wage ($7.25), as paying less than the federal minimum is only permitted under certain conditions. [2]  

So what’s the breakdown between state and federal minimum wage workers in Arkansas? According to Labor Department data obtained by Governing Magazine, an estimated 30,000 Arkansans make the federal minimum wage, while 14,000 Arkansans fall under conditions that allow them to be paid less – meaning that workers relying on the state minimum wage are actually the exception and not the rule.

Regardless, it only takes basic arithmetic to see that the proposal being pushed by the Give Arkansas a Raise Now committee would put more money in the pockets of tens of thousands of low-wage workers in Arkansas, as it would increase the Arkansas minimum to $7.50 in 2015 (exceeding the current federal minimum in its first year) and gradually increasing to $8.50 by 2017. That same minimum wage worker making $13,000 per year today would see his or her annual income rise by several thousand dollars under GARN’s proposal – a notable increase with a real financial impact on the lives of those affected.

But while we should expect a higher minimum wage to lead to greater take home pay for some workers, we shouldn’t anticipate that it would drastically reduce or eliminate poverty in Arkansas. [3]  In fact, of the 23 states (including the District of Columbia) with minimum wage rates that exceed the federal minimum, 11 have poverty rates at or higher than the national average (15.9 percent) – including New York, California, Nevada and the District of Columbia, where minimum wage is at or above $8 per hour, and Oregon, where the floor is set at $9.10 per hour.

One of the reasons that state minimum wage laws aren’t a cure-all for reducing poverty is that low-wage workers who benefit from the higher wages these laws establish aren’t necessarily members of low-income families, as one might assume. Additionally, an individual’s ability to rise out of poverty is first dependent on that person having a job, and only then about what that job actually pays. And while unemployment continues to gradually improve, there are still roughly 84,100 Arkansans out of work [4] who, by the fact that they’re unemployed, won’t find immediate relief through a higher state minimum wage.

Effect on Employers and The Job Market
Looking at the issue of minimum wage from a worker’s perspective is, of course, only one side of the coin. GARN’s proposal would increase Arkansas’ minimum wage by 36 percent over three years, a healthy amount that will undoubtedly raise labor costs for businesses all across the state. As we know, the economics of supply and demand will influence the labor market, and businesses of all sizes should be expected to adjust accordingly. In some cases that very well could include job reductions if businesses determine they can maintain their desired level of output with fewer workers on the payroll. 

Will a higher state minimum wage result in mass layoffs that drive up unemployment? Probably not. But could a higher minimum wage make it more difficult for unemployed low-skilled workers to find new jobs? Possibly.

Of the 23 states [5] with minimum wage rates that exceed the federal minimum, 14 have unemployment rates higher than the national average of 6.3 percent. Similarly, youth unemployment (defined as ages 16-24) is also higher than the national average in 65 percent [6] of the states with minimum wage rates above the federal level, as younger workers tend to find entry-level work in low wage positions.

The Free Market At Work
Often lost in the debate over whether states should increase minimum wage laws is the fact that many employers already pay their hourly workers more than the states and the federal government require, for numerous reasons including higher employee morale, lower turnover and market competition.  Earlier this year Gap Inc. announced that it would raise hourly pay for employees at Gap and Old Navy stores to $9 in 2014 and $10 in 2015. Gap Inc. CEO Glenn Murphy stated that the company wanted to "invest in frontline employees" and said they expected the increase to "deliver a return many times over." Similarly, Whole Foods Market – which pays its workers a minimum of $10 per hour – attributes its low employee turnover rate to its higher wages.

The same can be said for many Arkansas employers as well. The table below, compiled using data from the U.S. Department of Labor’s May 2013 Occupational Employment Statistics (OES) Survey, shows both the median hourly wage paid in Arkansas and the hourly 10th percentile wage across a number of occupational categories.  As you can see, the 10th percentile wage exceeds both the state and federal minimum wage requirements in every category, meaning that 90 percent of workers in each of those categories earn more than the listed amount  – proof positive that just because an employer can pay the minimum wage, it doesn’t mean that they do.

To Pass Or Not To Pass?
So what does it all mean?  Will an increase in Arkansas’ state minimum wage help improve the lives of low-wage workers or will it financially strain Arkansas businesses and make it harder for those currently unemployed to find jobs? Looking at the data as a whole, the answer appears to be yes.

Increasing the state's minimum wage will help some, but it will also hurt others. At the end of the day, should this proposal make the ballot, Arkansas voters will have to examine their own personal financial situations and decide for themselves whether the benefits of raising the minimum wage justify the costs.

[1] Similarly, the Federal Minimum Wage was re-established in 1938 (after being previously overturned in 1933) and was later upheld by the Supreme Court in the 1941 case of United States v. Darby.

[2] According to the Department of Labor – "The minimum wage law [the FLSA] applies to employees of enterprises that have annual gross volume of sales or business done of at least $500,000. It also applies to employees of smaller firms if the employees are engaged in interstate commerce or in the production of goods for commerce, such as employees who work in transportation or communications or who regularly use the mails or telephones for interstate communications. Other persons, such as guards, janitors, and maintenance employees who perform duties which are closely related and directly essential to such interstate activities are also covered by the FLSA. It also applies to employees of federal, state or local government agencies, hospitals and schools, and it generally applies to domestic workers."  And of course there are exemptions –

[3] The federal minimum wage is a slightly different story.  The Congressional Budget Office recently released a report on the impact of increasing it to $10.10 and found that it would move approximately 900,000 Americans above the poverty threshold (as $10.10 would set a new floor nationwide), but would also result in a net loss of 500,000 jobs.

[4] Roughly 10 million Americans nationwide

[5] And D.C.

[6] 15 out of 23
(Robert Coon is a partner at Impact Management Group, a public relations, public opinion and public affairs firm in Little Rock and Baton Rouge, La. You can follow him on Twitter at RobertWCoon. His column appears every other Wednesday in the weekly Government & Politics e-newsletter. You can subscribe for free here.)