Tuesday, March 23, 2010

Low wage workers wait while assembly fiddles

Before the Legislature recesses, it ought to help Wisconsin's low-wage workers by fixing the state's minimum wage law by indexing it to the rate of inflation.

The state minimum wage was raised from $6.50 to $7.25 in July 2009 when the federal minimum wage was increased. Like the national, it can only be increased through legislative action. As a result, increases are far and few between.

In the years when the legislature fails to act, the minimum wage quickly loses value (purchasing power) as prices rise. While the costs of health care, gasoline and education have soared, the minimum wage has declined in value. Currently, it is worth 10% less than it was in 1979.

The solution is simple: raise the state's minimum wage and index it to the cost of living. This will ensure that the state’s more than 300,000 low-wage workers' real wages don't decline just because the legislature fails to act.

And fail it has. The state last increased its minimum wage five years ago in 2005 and that was the first increase in 7 years. So in 12 years Wisconsin legislators have increased the minimum wage only two times. During that time their own salaries have been increased six times totaling almost $11,000.

It's not as if indexing is a radical idea.

In 1972 when Republican Richard Nixon was President, the United States Congress indexed Social Security to the CPI to insure that the nation's retirees and disabled weren't thrown into poverty simply because prices increased. This simple act rescued tens of millions from poverty. The elderly are no longer America's largest impoverished group.

Raising the minimum wage and indexing it to the cost of living will reduce inequality and increase productivity.

Until the 1980s, bottom rung jobs were valuable because the minimum wage was raised frequently enough to be an effective wage floor. Regular increases also raised the pay of workers whose wages were several rungs above the minimum and consequently reduced employee turn-over. Employers, forced to value their low-end workers, offered them training and advancement that led to increased productivity. Everybody benefited.

Ten states have already indexed their minimum wage to the cost of living. Twelve have increased their minimum wage above the national. None experienced the decline in employment that opponents of raising the minimum wage predict.

Critics opposed to raising the minimum wage use simple supply and demand theory to argue that an increase in the minimum wage (the price of labor) will reduce jobs ( the quantity of labor demanded) and increase competition for the jobs (the quantity of labor supplied) hurting the very low paid workers we are trying to help.

But studies of states that actually raised the minimum wage in the early 1990s (when the real minimum wage was falling) by economists David Card and Alan Kreuger found no increase in unemployment.

A more recent study by Jeff Chapman that reviewed the experience in all twelve states that have raised their minimum above the federal minimum concludes:"...the facts clearly show that the benefits of such increases outweigh any potential costs.”

There is a simple explanation for these findings. Most firms paying the minimum wage are large national retail and fast-food chains like Wal-Mart and McDonald’s, not the ubiquitous mom and pop stores of 1950’s main street. These firms make staffing decisions based on how many employees they need to efficiently serve their customers at any given time, not on marginal increases in the price of labor. The incremental increases in wages that result from indexing are absorbed through marginal price increases and or increased productivity.

Some say now is not the right time to address this problem. But if it wasn't right to index the minimum wage to the C.P.I when the economy was booming and it isn't right to raise it now, when will the time be right?

It is important to raise the minimum wage and index it now because Wisconsin is mired in what is at best a jobless recovery that will rob low-wage workers of the bargaining power they need to negotiate fair wages for their labor for the foreseeable future.

The Wisconsin Senate has already passed a bill, SB-1 that raises the state's minimum wage to $7.60 an hour and indexes it to the cost of living. It would help 316,000 Wisconsin workers, those paid the minimum and those whose wages are anchored by it.

There is a companion Assembly Bill, AB-41, but it has been stalled in committee.

What is the Assembly waiting for?

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