Building an Economy that Works for Everyone

Low-Wage Workers Deserve a Higher State Minimum

john burbank

John Burbank, Executive Director

In Tuesday’s State of the State address, Gov. Jay Inslee called for a minimum wage increase in the range of $1.50 to $2.50. It is about time. Our minimum wage has steadily fallen away from its high point in 1968. That was 35 years ago. And yet, worker productivity has almost doubled since then.

Up until 1968, increases in the minimum wage kept up proportionately with productivity increases. That made sense, as the gains in productivity were in that way equitably shared between employers and employees. Workers could increase their consumption and businesses could increase their investments (or just enjoy greater profits). But after 1968, minimum wage increases tailed off, while productivity continued to increase. If the minimum wage had kept up with increases in productivity, it would be over $17 an hour.

The minimum wage has also fallen in value when you take inflation into account. The value of the minimum wage 35 year ago, in today’s dollars, was just about $11 an hour. So even though Washington has the best statewide minimum wage in the country ($9.32), a worker earning the minimum wage here starts out $1.68 behind what she would have made in 1968.

A bit of state history is helpful: In 1998, voters passed Initiative 688, which increased the minimum wage from $4.90 to $5.70 in 1999 and $6.50 in 2000 and linked increases thereafter to inflation. In the two decades leading up to Washington’s minimum wage policy change, the bottom 10 percent of income earners, who earned near or at the minimum wage, experienced an 8 percent decline in real earnings. Since implementation of I-688, that decline has been reversed, underscoring the importance of a solid wage floor.

minimum wageBut we have a long way to catch up. While wages for the top fifth of workers have grown, everyone in the middle or below has actually lost ground. The bottom 10 percent of workers, compared to the bottom 10 percent 35 years ago, actually make 25 cents less per hour. The worker in the middle makes about $18 an hour, a 15 cent per hour decline.

The Washington Policy Center claims that our low minimum wage isn’t really a problem, because the “overwhelming majority of minimum wage earners are young and unskilled workers who work part time, live at home or are second earners in a two-income household,” and because “nationally, just two percent of full-time workers earn the minimum wage.”

The first point is a tricky bit of obfuscation.  Notice the “or.” According to the WPC’s own report in October, 25 percent are single or married with no kids; 42 percent live with a relative; and 18 percent are a second income earner who is married, with or without children.

So, according to their own data, minimum wage workers represent a good cross-section of the workforce.

Their claim could also read: “The fact is the overwhelming majority of minimum wage earners are young or middle-aged, and single or married, living in single earner or two-earner households.”

In fact, that would be more accurate.

As for the WPC’s claim that “just two percent of full-time workers earn the minimum wage”: Really.  If that is the case, then the Washington Policy Center has no reason to get so exercised about increasing their wages.

But a more accurate measurement of who would benefit directly from a minimum wage increase of $1 or $2 would be to look at the workers who currently earn the minimum or $1 or $2 more. In 2012 in Washington state, the bottom decile of workers (that is, the bottom 10%, or close to 300,000 workers) made $9.15 an hour. The next decile made $10.85. The third decile made $13.05. That means that easily 25 percent of Washington’s  workforce would benefit from a wage increase to $11.50 an hour.

And think of the effects on local economies: $2 is equal to a $4,000 increase in annual income. With 25 percent of the workforce benefiting, they would have $3 billion more to spend in local businesses.

When you look at the statistical evidence, we can see that service sector jobs, which have a greater share of minimum wage workers than the overall economy, increase with minimum wage increases.

In 1999, our minimum wage increased by 55 cents, employment in restaurants and hospitality in Washington grew by 6,400 jobs, and overall employment grew by 54,000 jobs. In 2000, the minimum wage increased another 70 cents, hospitality employment grew by another 4,700 jobs, and overall employment grew by 63,000 jobs.

Since then, the minimum wage has been pretty stagnant, in terms of purchasing power, keeping up with inflation but falling behind increases in productivity.  Where did the money go from increased productivity? Corporate profits and CEO salaries. Compare that to workers, spending their earnings in the local economy, creating more customers for businesses, which means more profits AND more hiring, and that means more competition that increases bargaining power of workers.  It is good all around.

That’s why the governor’s proposed increase in the minimum wage makes a lot of sense, for workers, their families, and our economy. Low- wage workers deserve a wage that approaches the value of their labor.

Originally published in Publicola

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