Welcome to another edition of “What’s the Deal?” the blog that loves a good hike, even without a view at the top.
In this week’s post, we’ll venture into the current debate surrounding the Federal minimum wage and how this fits into the larger social issues of income disparity and concentration of wealth in the United States.
As we delve into this political hot potato, we have to ask ourselves what the debate over the minimum wage is really about. In other words, what is the reason that the majority of Americans polled support the current offer of a raise to the minimum wage?
It is the ever-present and pervasive divide between those with wealth and opportunity and those whose windows for opportunities are few and are shrinking. It is this widening chasm of opportunity access that minimum wage supporters highlight and want policy makers to address.
Let’s look at current efforts to raise the minimum wage, the historical use and goals of the minimum wage in the U.S. and from there, we can gain a clearer perspective on the debate.
The Current: A Sky-High Minimum Wage?
In the “in between” town of SeaTac, WA (between Seattle and Tacoma), residents voted last November to raise the local minimum wage to $15/hour, a 63% increase from the state minimum wage of $9.19/hr. As controversial as the hike itself was, thousands of employees of the Seattle-Tacoma International Airport are not eligible for the pay increase as several employers at the airport filed lawsuits and won. So for now (there are appeals being considered) wages for many airport workers are “grounded.”
Up Interstate 5 to Seattle, another minimum wage law is being considered with equal measure of political divide. The eyebrow-raising proposal to raise Washington state’s largest city’s minimum wage to $15/hr is indeed a large step to take and has drawn the ire of businesses small and large who are worried about having to absorb the increased wages.
Another controversial twist in the plot is that the new minimum wage would be implemented to workers who receive tips – a major reason why the restaurant industry in the emerald city is up in arms.
Several other states are currently considering minimum wage legislation such as Maryland while New Jersey and Connecticut have already passed wage increases ($8.25 and $10.10 respectively). The minimum wage issue has really sprung into the spotlight recently with fast food worker strikes, D.C.’s living wage ordinance, and President Obama focusing on the issue with his State of the Union Address and his executive order raising the minimum wage to $10.10 for certain Federal workers.
The U.S. Senate is currently attempting to debate a change to the minimum wage. The bill (Fair Minimum Wage Act 2013) would amend the original Fair Labor Standards Act of 1938 to raise the minimum wage to $8.20 the first year, $9.15 the second, $10.10 after 2 years and index the wage to the Consumer Price Index in years afterwards.
The bill, introduced by Senate Democrats, cannot even make the Senate floor for debate because of its controversial nature and heavy lobbying from opposing voices – mostly business and conservative groups. So though the general public has voiced support for a raise, Congressional action has been non-existent.
Why has the push for a higher minimum wage been taken up a notch in the past year?
Mind the Gap
The push for a higher minimum wage is part of a realization that income inequality, the gap between rich and poor, has increased too far in the last four decades and that access to opportunity and social mobility has decreased as a result.
Much has been made of the amount of wealth held by a small portion of the population (the 1% vs. the 99%) with the top 20% income earners controlling 93% of total income, but it usually stops there. More than recognizing that the wealthiest Americans control most of the money, we need to explain what this means for everyone.
Below is a non-exclusive list of life factors and expenses that one might look at in a typical family budget. What income inequality has shown is that this budget is not a source of stress for a decreasing few, while it has become often unattainable or the predictor of poverty for the increasing majority.
This budget includes:
- Housing: Unable to own your own home (less expensive in the long run compared to renting) or live in safe locations with access to quality schools, grocery stores, health providers, or parks. This map shows the required minimum wage to live in different counties around the country – easily outpacing the Federal minimum wage in most counties.
- Childcare: The extreme costs of childcare force many families to sacrifice work or risk putting children in dangerous circumstances, profiled here in this PBS Newshour segment. This often sacrifices one parent’s income or severely limits a single mother’s ability to provide.
- Employment: For many people, working multiple jobs is the only way to make enough money to pay for the essentials, and even this combined with government assistance is not sufficient. Multiple jobs leave less time to raise families, add stress to households, and can be a risk to health.
- Education: Having to live in poorer areas mean that local schools are often underfunded (by lower property taxes) creating a stark inequity between low income and high income areas, reducing the chances for academic achievement, higher education and social mobility.
- Healthcare: Those folks who have healthcare included as a part of their employment are part of a decreasing population. With the implementation of the Affordable Care Act, more people should be able to find a plan through an exchange, but the mindblowing costs of healthcare along with many states’ refusal to expand Medicaid provide costs that are unaffordable to many households.
The point of all this is that more and more Americans are facing situations in which the basics of living are becoming unaffordable and that windows of opportunity to move up are closing. Inequality should be measured with more than just income, but since income has a high connection to opportunity, it is a good indicator.
More than just income inequality though, more than “the rich get richer”, the gap is in access to opportunity. Take education, for example. The number one predictor of academic achievement today is family income: a recipe for decreasing social mobility for lower income Americans.
The minimum wage fits into this picture by providing a baseline of how individuals can provide the basics for their household from a minimum wage job and whether the value of the minimum wage has kept pace. The answer is unequivocally, no. Hence, the stagnancy of the minimum wage has contributed to inequality of opportunity.
Haven’t we always had a minimum wage? And, why hasn’t the minimum wage been tied to inflation since the beginning? Wouldn’t that make sense? To get a sense of the purpose of the minimum wage as well as the political wrangling surrounding the subject, let’s take a look at its long and controversial history.
A Fair Day’s Work
The first efforts to bring about a minimum wage coincided with other protections for laborers such as collective bargaining, worker safety, shorter hours, and other issues. These measures were initiated at the state level and meant to protect primarily women and children as the workforce changed from an agrarian economy to an industrial one.
Beginning as early as 1840 in the U.S., measures to protect workers were initiated as President Van Buren issued an executive order establishing a 10 hour work day for government workers. Several states followed with similar measures between 1840 – 1860 and 8 hour work days followed for Federal employees in 1868.
The first minimum wage law was passed in Massachusetts in 1913 and 14 other states and D.C. followed between 1912 – 1923. But these laws were rendered toothless by a Supreme Court case, Adkins v. Children’s Hospital in 1923 which ruled that D.C.’s minimum wage law violated the “due process of the 5th Amendment” by interfering with a worker’s liberty of contract. This interference meant that the D.C. law was “getting in the way” of workers possibly bargaining for a higher wage. In addition, the court argued that since the 1918 law was meant to protect women workers, it was considered out of date because women were no longer disenfranchised in 1923, following the passage of the 19th Amendment granting women the right to vote.
As a result of the court’s decision, state minimum wage laws across the country were either struck down or became strictly advisory, making them unenforceable. The 5-3 court decision was controversial, with Chief Justice William Howard Taft (the former President) dissenting, writing that minimum wages offer:
“the benefit of the general class of employees in whose interest the law is passed, and so to that of the community at large.”
and protect employees because
“They are peculiarly subject to the overreaching of the harsh and greedy employer.”
and associate Justice Holmes asserted that Congress has a right to pass laws that protect the health and well being of workers:
“to remove conditions leading to ill health, immorality and the deterioration of the race, no one would deny to be within the scope of constitutional legislation.”
So, the Supreme Court was relatively split on the minimum wage issue and whether the government had the authority to intervene in the free market to impose a minimum wage. Adkins v. Children’s Hospital was later overturned in 1937, but the debate over how much government should be able to be a part of the market was the question at stake here.
Fair Labor Standards Act of 1938
Interestingly, labor unions initially attempted to block legislation that limited hours and brought minimum wages to the table. This was mostly because labor groups worried that a minimum wage really would mean a maximum wage for laborers, but also because most of the large umbrella unions (AFL for craft trades, CIO for industrial labor) had men as the majority of their membership. The Great Depression forced the groups to realize that all workers needed protection from economic panics. Political wrangling between the two largest union groups delayed passage of a comprehensive labor standards bill.
2 main players in the 1930’s were instrumental in bringing forth President Franklin D. Roosevelt’s desire for a comprehensive labor standards law to protect all workers, men and women. Sidney Hillman, who helped create the Congress of Industrial Organizations (CIO) with John L. Lewis along with Frances Perkins, the Secretary of Labor under President Roosevelt.
Hillman had created the Amalgamated Clothing Workers of America union and was a staunch supporter of labor standards to protect workers:
“He was a lonely if not solitary voice, demanding national action on unemployment insurance, low cost housing, public works, the 5 day work week, and minimum wages.”
Perkins meanwhile had devoted her efforts to carrying out FDR’s mission of protecting Americans through labor standards as he had done as Governor of New York. Perkins was put in charge of drafting such a piece of legislation and Hillman, given his adamant support of the issue was asked to assist Perkins with the bill which was initially submitted in 1937. The bill included a $0.40/hour minimum wage and created a labor standards board that would establish maximum hours by industry with a floor at 40 hours per week.
The American Federation of Labor (AFL) used its influence to attempt to block key parts of the bill which it saw as overly partial to the influence of Hillman and the CIO. This political wrangling back and forth saw measures watered down, such as key industries being removed from the influence of the labor standards board and delayed passage of the bill until 1938. President Roosevelt showed his exasperation over the delay during his State of the Union address in 1938:
“We are seeking, of course, only legislation to end starvation wages and intolerable hours; more desirable wages are and continue to be the product of collective bargaining.”
Roosevelt’s message was simple: laborers should not be receiving wages that don’t allow them to provide the basic necessities and that since the Supreme Court had already overturned their decision on Adkins v Children’s Hospital the year before, it had been decided that minimum wages did not violate the 5th Amendment. Soon after, the Fair Labor Standards Act was passed through Congress in 1938 implementing the $0.40 / hour minimum wage for certain workers.
The benefits of the Labor Standards Law were immediate and impressive. By 1941, according to the Department of Labor, over 700,000 workers wages had been raised to the required $0.25/hr and the $0.40 minimum was covering all workers by 1943. After initial opposition, the AFL and other labor groups had grown to see the minimum wage as a success, helping to lobby for a $1 minimum wage in 1946.
From the FLSA to the FMWA
One of the drawbacks to the initial minimum wage of the FLSA of 1938 was the absence of a minimum wage adjusted for inflation. Therefore, unless Congress raises the minimum wage, it loses buying power every year (things usually cost more over time while your wage stayed stagnant). Congress regularly raised the wage between 1940 and 1970, but did not continue the process in the 1980s. Two increases in the wage in the 1990’s and one in 2009 have left the purchasing power of the subsistence wage stagnant at a 22% lower rate than the wage’s peak in 1968.
So, all of the basic necessities mentioned earlier now take up more of the earnings of minimum wage employees.
The latest proposal to raise the minimum wage, the Fair Minimum Wage Act would gradually raise the minimum to $10.10 over a couple of years that would be indexed to the Consumer Price Index and include a higher sub-minimum wage (for tipped workers).
It should be noted that most employers had and still have no intention of having their workers starve by paying them next to nothing. Before the FLSA, most employers paid their workers what was cost effective and was based on what the labor market demanded. Other employers set their own company culture based around fair wages for a fair day’s work, such as Henry Ford when he implemented a $5/day min. wage for his workers in 1934. Given this information, however, wages that were “cost effective” for employers often did not provide sufficient resources for employees and many employees were exploited whether they were immigrants, women, children, or a different race.
Taking this all into account, why has the minimum wage been so controversial? and why is the Fair Minimum Wage Act so important?
Conclusion: Diluting the Conversation to Obfuscate Inequality
The movement behind the original minimum wage laws had as its ultimate goal to decrease inequality and provide improved welfare for the least well off. We saw this in labor legislation and its defense by the justice system. The opposition to the minimum wage both at the state and federal level derives from the desire to have less government involvement in the free market and to reduce the number of Americans receiving assistance from Uncle Sam. This argument against the minimum wage extends to today with the hot potato now being juggled in Congress.
But what are opponents of the FMWA and the minimum wage arguing?
The most common argument against the minimum wage comes from an economic perspective, that if you require employers to raise worker’s wages, employers will cut back on employee hours and the number of jobs.
This will, the theory goes, price workers out of the job market by making the fewer number of jobs more competitive, leaving the less skilled out of the workforce and therefore hurting the very people the that wage intends to help. In other words, the minimum wage is, according to critics, a “job killer.”
From all the research done on minimum wages and their effects (and their is a ton of research) we can say that with modest increases in the subsistence wage (such as in the FWMA), there appears to be few job losses as a result. Some studies have shown job losses and reduced hours, but the overall effect is a net gain in earnings for the vast majority of low income workers – disproving the notion that employers will make giant cuts to employment from minimum wage hikes.
Critics also argue that recipients of minimum wage are usually not from low income households, the “wealthy teenager summer job” argument. But this is countered by the facts of who would benefit from the FWMA:
- 84% are over 20 years old
- 54% of the benefits from the wage increase would go to the bottom 1/3 of the income bracket
- Women and minorities are over-represented as recipients compared to their percentage of the workforce
- The average affected worker brings home 1/2 of the family earnings
It is true that wages are not the only sources of income for low income Americans. Benefits such as food stamps, access to Medicaid, and the Earned Income Tax Credit (EITC) all help to supplement low income families. Minimum wage opponents argue that the EITC is sufficient enough to keep workers afloat. But the EITC only arrives once a year through tax refunds, and since it’s a work incentive, can put downward pressure on wages – meaning that a higher minimum wage should be a complement.
Are critics of the minimum wage really concerned about low income workers losing work according to their theory? Or are they only concerned about the influence of government and putting more in the hands of the poor?
With less taxes levied on the rich than in any other wealthy country, with the incomes of the top rising extremely fast with lower incomes stagnant, the intense critique against the minimum wage is a bit hard to understand. The reality of wealth distribution pushes in the other direction, with a maximum wage being a reasonable conjecture for addressing inequality.
Why does income inequality in the U.S. need to be addressed with the minimum wage increase as a start?
For people like Akilarose Thompson:
“To put it in perspective, yesterday I got paid, today I have not a dollar in my pocket,” said Akilarose Thompson, 24.
Thompson has worked at McDonalds for almost a year, serving customers on the cash register or on the drive-thru window. She got a pay rise in June and now earns $8.28 an hour – three cents above Illinois’s minimum wage of $8.25. Thompson works a second job too, at Red Lobster, but still has to go to food banks to support her and her 15-month-old daughter.
“Sometimes two or three a month. Lots of times you can only go to the same one (food bank) once a month, so I find different ones to go to. I have to in order to put food on the table,” she said.
“It is so depressing. You put a smile on because you’re in customer service and you have to. But on the inside it really breaks you down when you’re always at work but you’re always broke.”
The hardest thing, Thompson said, is the compromises she is forced to make because she does not earn enough money. She lives in West Humboldt Park, an area blighted by drug dealing. She worries about not being able to provide for her daughter.
“It would be life changing,” Thompson said (on the minimum wage rise). “I would be able to move and that is my sole thing right now. I have to get my daughter into a better neighbourhood. I have to.
“So if I was able to afford that then I could walk with my head held high. No more crying at night. Because you can’t cry in front of the kids because they’ll know something is wrong.”
A situation like Ms. Thompson’s is not atypical, it is not an apparition, it is not the result of poor work ethic, it is the chance result of being born in the United States: the land of shrinking opportunity.
Will the minimum wage be the fix that decreases income inequality perfectly? No, of course not, there is no quick fix to the social issue of income inequality. But a minimum wage increase does provide a much needed boost for 17 million American families like Ms. Thompson’s and would be a step in the right direction in reducing the great income and opportunity divide in our nation.
Until the next loaded hot potato,
Your Faithful Historian,
Eric G. Prileson
Sources and Further Reads:
Clifford Thies, The First Minimum Wage Laws, Cato Journal Volume 1, 1991. http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1991/1/cj10n3-7.pdf
Howard Samuel, Troubled Passage: The Labor Movement and the Fair Labor Standards Act, Monthly Labor Review, Bureau of Labor Statistics, 2000. http://www.bls.gov/opub/mlr/2000/12/art3full.pdf
Schlesinger Jr., Arthur M., The Almanac of American History, Bramhall House, 1983.