Catch up and keep up. That's the main message from a strong coalition of nonprofit groups who are advocating for a $9.50 minimum wage, indexed to inflation. They are adamant about ensuring wages keep pace with the rising cost of rent, food, and gas, so that workers don’t fall further behind in our economy.
Had the 1973 minimum wage kept pace with inflation, it would actually be $9.44 today, according to Minnesota 2020 analysis.
“It could be worse” is the old Minnesota explanation of weather conditions. It might apply to our housing markets as well.
Minnesota 2020 and Minnesota Housing Partnership have been collaborating on a series of articles looking at the “Uneven Recovery” for our state and local housing markets in the five years since the housing bubble burst. Now come data showing more severe problems in other parts of the country, and why the entire U.S. economy may hang on the housing market going forward.
Katie Doyle of Bankrate.com has assembled data showing “Foreclosures: 10 Worst States Right Now.” Nationally, one mortgage in 1,055 is in some stage of foreclosure – improved from 655 in second quarter 2012 - while Florida continues to lead the pack with one in only 346.
Following behind Florida is Nevada, one if 533; Maryland, 543; Illinois, 603; New Jersey, 619; Connecticut, 752; Delaware, 818; South Carolina, 850; Ohio, 885; and California, 921. Whew. Minnesota doesn’t make the list.
A related real estate data offering from msn.com sheds more light on how vulnerable the housing market recovery might be to rising interest rates and possible Federal Reserve policy going forward. In a slide show presentation on “Home, sweet unaffordable home,” it uses Zillow Inc. data and analysis to list cities and metro areas especially vulnerable to interest rates.
Consider this example: San Francisco homeowners have historically paid 38.2 percent of median household incomes on housing costs. If mortgage interest rates go up to 5 percent, housing costs will take a projected 46.4 percent.
Other areas that should be of concern for the national economy include San Jose, where a mortgage rate increase to 5 percent would raise housing costs from an historical median of 35.6 percent of household income to 42.4 percent; Santa Rosa (Calif.), from 32.2 percent to 40.3 percent; Honolulu, from 37.5 percent to 39.6 percent; and San Diego, from 35.6 percent to 38.9 percent. Los Angeles homes are hanging on the same interest rate cliffs.
Such data beg a couple of Minnesota observations.
First, it means homeowners in California and a few other high-cost areas face the same range of housing cost burdens we’ve noted for 66 percent of renters in Minnesota. Federal guidelines say everything above 30 percent of household income spent on housing is a burden.
Second, our Minnesota economy might withstand downward pressure from a housing collapse and regional recession in states such as Nevada, South Carolina and even Florida. But there is no way we would escape economic shocks from a collapse of California – America’s most populous state.
In the next few days Minnesota has a real shot at achieving economic justice for working families. Representatives from the state House and Senate are negotiating on a compromise that should ensure that the minimum wage catches up and keeps up to the cost of living.
It appears there's agreement on raising the wage to $9.50; however, there is still debate around ensuring that the minimum wage keeps pace with inflation in future years. This is know as indexing.
Currently the House is calling for the wage to keep pace with inflation as measured by the Consumer Price Index (CPI), but not to exceed an annual growth of 2.5%.
Under that plan, we'd see a modest increase in the minimum wage, but because of the 2.5% cap, the cost of goods would still likely outpace the minimum wage over time.
If inflation over the next 10 years resembles inflation over the last decade, the minimum wage under the current proposal will grow by $1.93 per hour. However, the minimum wage would need to grow by $2.22 to keep pace with the projected growth in the cost of consumer purchases. The graph below shows the growth in the minimum wage over the last decade, assuming that a $9.50 minimum wage had been adopted in 2004 and indexed to inflation along the lines of what is proposed by the House; the graph also shows the growth in total consumer purchases, food, and housing over the same period.
Indexing is a fair compromise between the concerns of the business community over a rapidly escalating minimum wage and the need of working families to maintain the purchasing power of their wages in the face of inflation.
If Minnesota’s original $1.80 per hour minimum wage enacted in 1973 had been indexed to the CPI from 1973 to the 2013, today it would approximately equal the proposed minimum wage of $9.50.
If state policymakers had indexed the minimum wage in 1973, the purchasing power of minimum wage workers would not have eroded over time as it has done. Furthermore, the periodic legislative skirmishes over the minimum wage (such as the one we are now experiencing) could have been avoided and the level of the wage would have been more predictable and stable for businesses and workers alike.
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Low income and poor health go hand-in-hand. Working two to three jobs, many low-wage workers don't have the time to take care of their bodies. Wellness visits, a healthy diet, exercising and getting the proper amount of rest are luxuries they really can't afford. Most workers hardly have the time to spend with the families they work so hard to support.
One of the outstanding issues in current legislative negotiations over the minimum wage involves "indexing," which refers to the practice of annually adjusting the minimum wage so that it keeps pace with inflation. Without annual inflation indexing, the value of a $9.50 per hour minimum wage will erode over time as the purchasing power of the dollar declines.
This will not only be bad for low-wage workers who will see their real wages shrink from year to year, but will create periodic political pressure for another minimum wage increase in future years. Indexing the minimum wage to inflation is a common sense way to take politics out of future minimum wage discussions by linking growth in the wage to growth in the cost of items that families need to purchase.
The Consumer Price Index (CPI) measures changes in the price of the market basket of consumer goods and services purchased by the typical household. It makes sense to index Minnesota’s minimum wage based on growth in the CPI to ensure that the wage will keep pace with the cost of living in future years.
Indexing the minimum wage for inflation will also provide predictability and stability for businesses, as employers will have a reasonable idea as to what future wage costs will be, since growth in the minimum wage will be determined by the rate of CPI inflation and not by the vagaries of the legislative process.
Average annual growth in CPI inflation has been two percent for the last several years (2010-2013) and is expected to average less than two percent for the next four years (2014-2017) based on IHS Global Insight projections. Under House File (HF) 92, the state minimum wage would increase only modestly in 2016 and 2017 based on these CPI projections.
The hourly large employer minimum wage would increase by an estimated 15 cents and 17 cents respectively (less for small employers) during the first two years that the HF 92 inflation indexing would be in effect, based on estimates derived using IHS Global Insight CPI projections. Even if the rate of inflation were to increase in future years, HF 92 would cap the annual minimum wage increase to 2.5 percent.
Indexing the minimum wage will protect the earnings of low-wage workers from inflation, take the politics out the determination of the minimum wage in future years, and provide stability and predictability for Minnesota businesses. Minnesota should join eleven other states in adopting this common sense approach during the 2014 session.
Minnesota’s economy demands an increasingly educated workforce. By 2018, it’s estimated that 70 percent of Minnesota jobs will require some post-secondary education. In fact, Minnesota companies require a better-educated workforce than in any other state, and they report trouble with finding qualified applicants.
Workers, too, struggle in this job market. Those without a high-school or college degree are largely limited to shrinking job prospects and stagnant or declining wages. And we can’t ignore that the Twin Cities has one of the largest racial gaps in the nation when it comes to employment for people of color.
Given these realities, we should prioritize education for low-income workers. One way to do that is to update the Minnesota Family Investment Program (MFIP, or “welfare-to-work”) to ensure that the poorest families have better routes to self-sufficiency. Right now, just 63 percent of parents enrolled in MFIP have a high-school diploma or GED. Only 1.4 percent have a college degree. If low-income parents can’t improve their educational prospects, they face long odds for staying employed at a sustainable income level.
There are a few ways in which current MFIP guidelines limit a family’s educational prospects, and ultimately its self-sufficiency:
- Parents are allowed to pursue education, but those working towards English proficiency or a GED/diploma are usually limited to spending half of their required “work activity hours” on schooling. That means that they must spend the other half of those hours (10-15 per week) either working or looking for work. Asking a low-income parent (quite likely a single parent) to pursue school, employment, and parenting all at once slows their educational progress. The longer it takes for them to finish their education, the longer they’re stuck with low-wage jobs or no job at all.
- MFIP participants pursuing higher education are limited to two-year programs. Any four-year program doesn’t count as work activity, meaning that parents wanting to earn a bachelor’s degree would still have to complete 20-30 hours of work or job-searching each week on top of their schoolwork and parenting. Parents would also be denied childcare for the time that they spend in class since that class isn’t an approved work activity.
- MFIP participants often don’t realize that they have the option to go to school—it’s not usually encouraged or advertised. States are judged on how well their assistance programs help people find work. States do not get credit towards their “work participation rate” for people who take the time to get a degree (nor do they get credit for families whose earnings improve enough to leave MFIP altogether, but that’s a different story).
- Once an MFIP participant finishes their GED or postsecondary program, they are given six weeks to find a full-time job relevant to their education and career goals. After that, they are required to accept any reasonable full-time job offer, whether or not it puts their education to use and offers a path towards increased earnings. In today’s economy, six weeks is a tight timeline for any grad.
The Workforce Education Bill, which the Prosperity for All coalition hopes to pass in this legislative session, would address these barriers to education. The bill would:
- Give all MFIP participants the opportunity to pursue any level of education full-time. Parents would still be required to meet the 20-30 hour weekly “work activity” quota, but schoolwork could constitute any needed percentage of those hours. Many parents would likely still choose to work at least a few hours per week and won’t be penalized for doing so.
- Extend approved postsecondary studies to include four-year degree programs.
- Mandate that all MFIP participants are informed of their right to education.
- Give recent graduates twelve weeks to find a full-time job that meets their employment goals before requiring them to accept any full-time job.
These provisions are common-sense updates that reflect Minnesota’s changing economy. By giving our poorest families a hand up to better education and better jobs, we’ll create a more competitive, self-sufficient workforce for this generation and those to come.
Posted in Economic Development
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Editor's Note: Below is a copy of my prepared testimony supporting the minimum wage. It was delivered Monday, March 3rd at a minimum wage conference committee hearing.
Madam Chair and members of the committee, my name is Steve Fletcher. I’m the Executive Director of Minnesota 2020 – a progressive think tank focused on policy solutions on issues that matter to Minnesotans. I’m honored to be able to offer my testimony today.
I’m also relieved that these hearings are finally here, after we’ve spent the months since the end of last session analyzing the minimum wage issue from nearly every possible angle to answer the questions that felt unresolved when that session ended. Our research staff, joined by our colleagues and friends at Jobs Now, Growth and Justice, and more have exhaustively considered the issue, and arrived at a strong consensus:
I’m happy to report to you that you have the opportunity, by raising the wage to at least $9.50, indexed to the consumer price index, to do something for our state that is unambiguously supported by research – a rare luxury in politics, and a strong call to action.
Over the last few hearings, I have heard this bill’s opponents distort reality to make their argument, providing numbers out of context that calculate only the costs to business of raising the wage without adjusting their estimates for any of the benefits. History and economics tell us that increasing consumer purchasing capacity is a strong way to kickstart our economy that will ultimately create more jobs – not less.
Raising the wage will put nearly half a billion dollars into the hands of people who will spend that money on basic goods and services, fueling demand and increasing business opportunities. None of the estimates of the costs presented by the naysayers factor in that increased spending capacity. Do not be frightened by numbers given to you out of context, and designed to demonstrate costs in isolation from benefits. It is statistical sleight of hand that cannot be supported by real world examples.
In particular, we’ve heard fear-mongering about indexing. We’ve been told that putting the wage on auto-pilot forced Washington and Oregon to raise the wage in a recession – as though that was a bad thing.
In truth, it’s widely accepted that growing income inequality (along with reckless, unrelegulated financial industry practice) was a key cause of the recession. There’s no reason to assume that Oregon and Washington suffered for having higher wages. In fact, there’s plenty of reason to believe that the recession would have been worse had consumer purchasing capacity been even lower. The fact is, these arguments are a great example of why we need to take politics out of the wage-setting process by indexing to CPI – so that fear-mongering won’t leave workers and employers wondering what next year’s legislature might have in store for them.
We’ve searched exhaustively, and can find no place where the wage was raised and the sky fell. Businesses do not abandon location criteria like infrastructure, educated workforce, access to roads and freeways, visibility, and pedestrian traffic in order to save a few bucks on payroll across the border. Back of the house kitchen staff are not paid better in states with tip penalties.
On the whole, increases in the minimum wage create jobs by kick-starting the economy. Raising the minimum wage to at least $9.50 benefits everyone, including the unemployed youth about whom the business lobby has recently grown so concerned. It’s time to act, boldly and decisively, to enact popular, research-supported legislation that will directly benefit hundreds of thousands of workers and indirectly benefit us all. Thank you in advance for helping workers catch up and keep up.
The far right and far left tend to agree on more issues than folks realize, but have very different ideas for how to resolve those issues. The recently enacted federal farm bill is one example.
Putting bitter disagreements over the SNAP program aside, when it comes to parts of the bill dealing directly with farming, both sides agree commodity crops are getting far too much federal support. Advocates on the far left would rather see programs that favor small-scale agriculture or some type of means test, some on the far right would rather see no programs at all.
Historically, Congress has chosen commodity support programs to avoid making the farm bill farm welfare on the theory that sound food and fiber policies are in the general public's interest.
While the nature and scale of farming have changed over the generations, federal farm policy has been slow to follow. Certainly there are shortcomings in how we support getting fresh fruits and vegetables to American tables, but funding micro farmers and small-scale growers is too inefficient to produce the bounty needed to feed the nation. Many say this is just a subsidy for peasant farming.
Our current large scale farming contains a mixed bag production practices with some farmers "mining" the land and water resources while others consciensously employ what agronomists and other scientists define as "best practices" to mitigate harm to land, water and air. Minnesota agriculture isn't an exception. Both the farm bill's commodity programs and the large farmers' scale help them avoid the boom and bust cycles of previous generations.
So what's the balance to make farming sustainable from an economic, environmental and food security stand point?
This farm bill got us closer and farther from this balance. You can read the overview from Kent Olson, an economist with the University of Minnesota Extension Service and a leading expert on farm finances, for more on some of the bill's details.
Minnesota’s two U.S. senators and at least two members of the U.S. House of Representatives worked tirelessly on this farm bill. While some might criticize the final outcome, it's important to remember there are a number of competitive interests in this type of legislation. At the end of the day, one of the main goals is to ensure a stable and affordable food supply, and that's what this farm bill does.
As the legislative session began, workers, activists, and lawmakers filled the capitol rotunda in another call to Raise the Wage to $9.50. Many of those who would benefit most from $9.50 weren't there because they couldn't afford to take the day off. Here’s what they missed.
Five legislators and one city council person from Moorhead took the challenge to live on a minimum wage worker's pay for one week. Each person was given $5.00 a day to cover the cost of food and $9.00 a day for transportation. After the challenge, legislators and low-wage workers discussed how an increase in wages would help folks and their families.
With the legislative session now starting, the fight to raise the minimum wage will intensify.