Wage law a progressive point of pride

W ashington state continues to be at the forefront of progressive economic development by paying a minimum wage that is not only higher than the federal level, but is also indexed to increase every year to keep up with inflation. This 1998 voter-approved mandate allowed this year’s 19-cent increase to $7.35 an hour, which gives Washington the distinction of paying the highest minimum wage in the country.

This distinction is to be celebrated, not criticized. By placing a floor under wages, we can avoid the domino effect of wage-slashing, falling regional incomes and a population that can no longer afford to buy the region’s output – causing stagnation in the regional economy.

While worker advocate organizations support minimum wage legislation, local businesses often decry the mandate, claiming it will lead to an increase in unemployment and that the increased financial burden on employers will lead to inflation.

This is simply not true, and it is very important to separate the truth from fiction in these arguments. The specter of higher unemployment and higher inflation are usually raised to try to make it appear that all of us are affected equally, and negatively, by increases in minimum wages. But in fact, most of us benefit from these increases. Not only do we get the satisfaction of seeing fewer people around us living in poverty, but as welfare caseloads are reduced, so is our potential tax burden.

Most studies of the impacts of changes in minimum wages reach the same conclusion: unemployment is stable or is reduced. From an economic point of view, this fallacy of increased unemployment assumes that because labor costs increase, the demand for labor would be reduced. But this ignores that wages are incomes and those at the bottom spend almost all of their income locally. As wages at the bottom rise, so does the demand for local goods and services. To provide these new outputs, local firms need more labor, not less.

A second argument is that raising the minimum wage will lead to inflation, which hurts the people it is meant to help. This argument is wrong for two reasons.

First, as an example, assume that wages are increased by 20 percent and that businesses pass this entire increase along as a price increase. If labor makes up half of the costs of the firm, then prices for these firms rise by 10 percent. If firms that pay minimum wages make up 30 percent of the regional economy, then the average price increase in the region is just 3 percent. The incomes of those at the bottom have risen by 20 percent and the costs of what they buy has gone up by just 3 percent. Those we are trying to help have definitely benefited.

Second, price increases of this magnitude are highly unlikely because of competition in the marketplace. Most firms that pay minimum wages are in relatively competitive markets, like fast food franchises. As much as they would like to, the market will not allow them to pass all cost increases onto the customer as price increases. Cities that have adopted higher minimum wages have not seen an increase in their local inflation rates.

But a minimum wage still falls short. According to the U.S. Census Bureau’s 2003 American Community Survey, 16 percent of people in Spokane County live in poverty. Many of these people are classified as the “working poor,” people who are working full time jobs at the minimum wage but still are not able to pay their bills. When families are not able to earn a “livable wage,” they are forced to make difficult and sometimes dangerous choices between adequate health care, child care, balanced nutrition, paying the rent and reliable transportation.

Minimum wages, even at $7.35 an hour, do not begin to provide economic self-sufficiency. A conservative estimate for a family of four’s basic needs is approximately $2,600 a month. $7.35 an hour would contribute only $1,176 per month before taxes in a full-time job, so even doubling this figure, assuming two full-time minimum wage workers in the household, does not pencil out.

What do these families do? They turn to public assistance and, more often than not, go without health care and play bill-paying roulette. A livable wage begins to address this shortfall, and 123 cities and communities across the country have adopted livable wage legislation.

The fact of the matter is, large numbers of people are not earning enough money to make ends meet, and Washington is taking steps to address the problem. Kudos to the voters in 1998 for passing this initiative, and we hope it is a positive trend for progressive economic development.