Tuesday, July 18, 2006

Minimum Wage More than Frozen in Place--Part Two

Every time the issue comes up, opponents argue that raising wage requirements for labor at the bottom of the economy would actually cost America jobs and contribute to a damaging new cycle of inflation that would stall the entire economy.

Others argue that raising the floor on wages would simply drive more jobs overseas.

Some are on record as saying that increasing what the lowest paid workers receive an hour would rob even more laborers of health benefits.

It is hard to counter these arguments without hard data.

Instinctively, I have always felt that such notions were basically wrong-headed.

It has always seemed to me that if people were earning more, they would spend more. This increased buying capacity would create more demand for goods and services and thus, more jobs, more profit and more economic well-being for everyone.

We find it easy to argue in this manner when we place more buying power in the hands of the wealthy. Why wouldn't the same principles apply to those at the bottom?

On my more judgmental days, I have written off such anti-labor arguments as thinly veiled defense tactics to cover simple, but deadly, individual greed. Forgive me.

But, now we have data. Hard data.

On May 2, 2005, the State of Florida increased its state minimum wage from $5.15 to $6.15 an hour. Voters also approved tying wage levels to an ongoing, inflationary index. As a result, by January 1, 2006, the lowest wage level had risen to $6.40 per hour (that comes out to annual earnings of $13,312 versus the current $10,712 ).

A year later the Research Institute on Social and Economic Policy (RISEP) at Florida International University (FIU) along with the Florida Chapter of the Association of Community Organizations for Reform Now commissioned a study of the results of the increase in minimum wages after one year.

Written by H. Luke Shaefer, University of Chicago School of Social Service Administration and Bruce Nissen, FIU--RISEP, the report, based on empirical evidence, debunks every objection to raising the minimum wage.

The report answers five clear questions.

1) Since Floridians approved the new minimum wage law, have businesses been forced to cut labor costs by laying off workers?

To the contrary, the Florida unemployment rate has steadily declined since the new minimum wage took effect. In fact, between May 2005 and February 2006, the Florida rate fell more than twice as much as the federal unemployment rate (17.9% versus 5.9%). Private service providing work evidenced the steadiest growth of any employment sector with no dips on the trend line. Further, Florida's job growth rate has been stronger in the year since the new wage level was enacted than during the previous year.

2) Has the service sector, especially the hospitality, retail, accommodations and food service industries, been worse off? Has the agricultural sector been worse off?

No. All of these sectors have done well and each has evidenced growth. In fact, each of these sectors reported strong growth and economic health. While agricultural jobs did report losses, these were of a seasonal nature, as is the case annually. Furthermore, the ag job loss was less severe in the year under consideration than in the year before the change in minimum wage.

3) Since the new minimum wage took effect, have businesses been forced to move out of state at a greater rate than before?

No, not at all. To the contrary, the number of privately owned businesses in Florida grew by over 10,000 in the first full quarter after the new state minimum wage law was passed. Instead of losing businesses that employ people, Florida is gaining such establishments faster than at any time since before 2003.

4) Are low-wage workers better or worse off since the implementation of the new minimum wage?

While Florida remains a low-wage state, it is clear that since the new wage law took effect, wages in the state have grown to an average of just over $700 per week. An interesting additional finding is the fact that raising the minimum wage did not increase wages for those workers earning several dollars an hour above the minimum as many critics had predicted.

5) Has the higher state minimum wage put Florida at a competitive disadvantage in comparison to other states?

Since Florida ranks at the bottom of those states with minimum wage laws, it is clear that there is no competitive disadvantage. Of the four states with the largest Gross State Products, only one--Texas (fanfare just here, please!)--does not have a minimum wage law. Rather than being placed at a disadvantage, Florida led the nation in economic and employment growth.

Conclusion: The critics and naysayers are simply wrong.

Raising the minimum wage is not bad for the economy, its workers or its business climate.

Doing right is never wrong.

Pursuing a more just society is always right.

How labor is treated is a moral matter.

It is past time to raise the national minimum wage.

(For my Christian readers, see James 5:1-6. For my Jewish readers, see Isaiah 58:3. If there are similar passages in the Koran, and I expect there are, please advise me. For ministers who read here, use these texts soon!)


Missionary's Missionary said...

Perhaps we should re-read Yoder and consider his premise that the kingdom ushers in the(eternal) year of the Jubilee - or do we have an evil eye (lack of compassion for the less fortunate)?
Grateful for hard data on this issue.

Daniel Gray said...

Wow, let's raise it now... :)

Very interesting information -- most of which I've never really heard before (I'm sure others are in the same boat.) Couple of questions:
1. Are there any other hard data from other states either supporting or in conflict with these findings?
2. Where can I find more info on this report from Florida, or even a copy of the full report?

I'm a social work major at ACU, and in my policy class this spring, I wrote an analysis paper of the EITC -- so I was really in favor of expanding the EITC in light of most of the "arguments" against minimum wage. Ideally, I'd still be in favor of the minimum wage too (especially if the negatives are almost non-existent), but I'd still like to find more research on the issue.

Thanks for your help, Larry!

Larry James said...

Daniel, I'd be glad to send you a hard copy. Email me your mailing address at ljames@centraldallasministries.org.I don't have the report in electronic form.

I expect there may be other studies from other states.

We need to face the fact that those who block the poor often sound convincing and full of truth, but in fact they are not telling us the truth.

BTW--are you related to Ed and Rhonda Gray?

Daniel Gray said...

Yes, they are my parents.
Thanks for sending the report (you've been e-mailed).

That is something I was not always aware of growing up. Going to a private school and being a part of a soomewhat politically conservative church (even though they were very missional and active in inner-city work), I always had an aversion to government involvement. That's something I've had to grow out of in trying to listen to both sides and find the real truth.

Internet Esquire said...

Quite surprisingly, libertarian economist Steve Landsburg argues quite convincingly that the minimum wage is not the big job killer that most other economists believe it to be. Nonetheless, if your objective is to help the working poor, an expansion of the Earned Income Tax Credit would be much more effective and equitable than raising the minimum wage.

Daniel Gray said...

IE -- Thanks for the interesting article from Landsburg.

I saw 2 of your reasons on your blog against the minimum wage. In regards to number one, I think the minimum wage would still be useful to those above the poverty line who still have low-incomes. To number two -- the effect on employers would trickle out through the economy -- through employers cutting other costs or raising prices (that's the part where my inflation fears come in).

Are you in favor of not having a minimum wage at all or simply not raising it? I'd like to know what other reasons you have against the minimum wage.

I like the idea of having both minimum wage and EITC - with both being expanded. Minimum wage gives people more up front for living expenses, whereas the EITC almost acts as a short term investment plan by giving people money each year in a lump sum -- Unfortunately many low-income people are confused by the EITC (it confuses me) or don't even know about it. At least the minimum wage forces help across the board.

MommyHAM said...

Short on time today, but skimming through today and yesterday's post, I've got to say I completely agree!

Here in N. CO, a minimum-wage earner would have to work 124 hours/week with no time off in a year to afford a 2 BR apartment. How many hours are actually in a 7 day week? 168. That means a remaining 6 1/4 hrs/day to sleep, relax, spend time with kids, run errands, eat, cook ,etc. are available. I sleep more than that every day! It's impossible!!! And, people say, "Well they don't have to work min. wage, they could go to school and get a better job..." Perhaps, but it seems to me that justifies the idea that only SOME of America's hard workers deserve to have a safe and decent place to live - and that's wrong to me. Very wrong.

For that data in your state, one can visit http://www.nlihc.org/oor2005/.

Anonymous said...

How about.... Central FLORIDA Ministries? :)