Turning the tide: the fight for a $15 minimum wage

Income growth distribution. Source: http://news.good.is/beg-borrow-steal/econographic#%21/2
Income growth distribution. Source: http://news.good.is/beg-borrow-steal/econographic#%21/2

There is a war going on in the Pacific Northwest. It has garnered some national attention, and cities across the country will be influenced by the result. Which side wins, and whether they get most of what they initially wanted, will ripple across the nation.

Seattle is debating a $15 minimum wage.

This is an extraordinary fight, because it was linked to an extraordinary campaign. Kshama Sawant, a member of Socialist Alternative, defeated a sixteen-year Democratic incumbent to win a seat on the Seattle City Council. I’ve written about Sawant several times (here was my pitch prior to the election), and her success is one of the biggest events in the American left since the McGovern campaign. The whole campaign was tightly bound around a single campaign promise- a $15/hr minimum wage.

Her victory, against the grain of traditional Seattle politics, indicated that popular sentiment was on the side of her campaign and the organization she helped found, 15 Now. Seattle is joined by San Francisco in pushing for a ballot initiative. The engine is Seattle though, with over a year of constant campaigning. Pressure has given the proposal wide political acceptance, even among business-friendly Democrats.

The split between worker productivity and worker wage increase
The split between worker productivity and worker wage increase

The argument is straightforward. Since the end of World War II-era price controls, worker productivity has increased substantially, but since the Nixon Administration is no longer matched by increases in wages. This era has also been one of sharply rising costs- education, healthcare, rent. I’ve drawn a grasp with permanent markers to give you the result. No, seriously:

A simplified graph of wages vs. costs since 1970
A simplified graph of wages vs. costs since 1970

The minimum wage isn’t tied to inflation, so it buys far less than in decades past. Increasingly, those that make minimum wage (or close to it) no longer have a living wage. They can’t afford to raise their kids, or live anywhere near where they work. Thus they rely on two things- credit and welfare. There are plenty of people working crazy hours yet still in the economic strata to require welfare to make basic ends meet. Without a strong wage, the taxpayers are footing the bill for underpaid workers.

There are two broad concerns at play in Seattle. The first is about the minimum wage as a whole- that it kills business, competitively, leads to unemployment. I tackled these broad issues last August here. I found there to be a lack of solid evidence that the minimum wage is a great harm to society- people often say that it is, but they’re relying on the standard (typically called ‘neoclassical’) model, which actually isn’t that accurate. We’ll return to that thought.

The second are the specifics of the wage increase. Basically, who has to increase to $15 and by when? Originally the idea was an increase from all businesses immediately. The version that’s being filed and will probably get voted on soon has a three-year lead-in for small businesses and nonprofits. $11, then $13, then $15.

In terms of a debate, the place I’ve found with the most content dedicated to the issue is The Stranger, Seattle’s sweary alternative newspaper. They strongly endorsed Sawant (dedicating an issue to making a case for her), but they’ve been releasing editorials in pairs- one advocating for an exception, one against. Currently, four pieces on the minimum wage are in the “most commented” section on the front page.

This is a bitter fight. Big businesses (especially those for which most of their staff make under $15) are fighting tooth and nail- and sometimes use small businesses as a front to advance their own interests. There is clear evidence in leaked documents. This is nothing new, but it’s important to pay attention.

While not anything close to an expert, I’ve taken enough college economics to have a decent grasp of minimum wage mechanics, as one of the basic aspects of the labor market. There has been quite a lot of misleading statements- and one would assume that if San Francisco and Seattle ultimately succeed, they will pop up again and again as the fight moves to other areas.

A number thrown out in the debate is 60%- the increase from the current state minimum wage of $9.19 to $15. Often the proposal is said to be a “60% increase in labor costs.” That’s not even close to true. What’s important to know is that essentially no business pays every worker minimum wage. If they did, it’d be 60%, but if people are making $10.50 or $12.75, it’s a lot less than that. Also there are plenty of workers who make over $15 in a given enterprise who won’t see any increase- at least directly.

$15/hr protestor in New York City. Peter Foley/EPA
$15/hr protestor in New York City. Peter Foley/EPA

Another issue is distorting costs. While labor costs are important, they sit alongside the cost of land, rent, licenses, legal and financial assistance, and of course whatever a business sells. The best read of The Stranger editorials is this one by bar owner Andrew Friedman. He got an overwhelming pushback by commenters, including several who work for a small business. As an accountant stated, if their firm raised all employees to $15 it would be a 4.33% increase in costs. There’s a big difference between 60% and 4.33%. While all cost hikes will affect total costs, labor is not all of a businesses’ costs.

A proposal has been made to include “total compensation”. A series of essays go back and forth starting here. What’s wrong with $15/hr total compensation? Well, a few things. It allows the employer to include (and overvalue) other non-wage benefits. Given the rapid rise in health care costs, this could easily eat into the actual wage earned until there is no rise at all. And it gives employers a great amount of power- they figure out the costs, they determine what total compensation is. You can’t make a good argument for wage theft because the wage has no solid meaning anymore. It’s just part of the total compensation soup.

The reality is simple. Large corporations, that employ a huge amount of minimum wage workers, are skating thanks to government subsidy of their business (sweetheart tax deals, plus tax loopholes) and government subsidy of their workers. The end result is incredible US corporate profits. A move towards a $15/hr minimum wage is recognizing that there is no disaster for American corporations if labor starts closing the gap between what it produces and what it is ultimately paid. It’ll throw a wrench into the economic idea that profits must constantly rise and increase- the system where shareholder concerns are much more pressing than labor concerns. But that sort of escalating system also causes destructive market bubbles, so maybe it needs a wake-up call.

Source: http://qz.com/192725/what-another-record-year-of-corporate-profits-means-for-the-us-economy/
Source: http://qz.com/192725/what-another-record-year-of-corporate-profits-means-for-the-us-economy/

I’m tired of people making hackneyed economic arguments that don’t have a solid foundation beneath them. The dangers of a high minimum wage are a meme, perhaps exacerbated by the fact that most introductory economics courses are strongly slanted to that conclusion. As I pointed out in a rebuke of Alex Berezow’s ill-suited attack on Sawant, many journalists and pundits don’t cite anything more complicated than N. Gregory Mankiw- often just leaving it at ‘common sense’.

Serious discussion is due for the minimum wage. Each month brings new depressing confirmations- income inequality is soaring, it’s reversing decades of gains by the middle class, people are getting wrecked by increased costs and don’t have the money to save, invest, and eventually retire. When a movement emerges that actually offers a potential solution, efforts must be made to understand it from their perspective. US journalism tends to start from the perspective of how a new policy will affect corporations.

Perhaps they should think of how the lack of a new policy current affects workers and families.


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