Minimum wage debate: history and examples

Minimum wage debate: history and examples

 

minimum wage, taylor jones, cagle, May 8, 2014With rallies in Los Angeles and Bay Area cities seeking a $15 minimum wage for fast food workers and state Sen. Mark Leno, D-San Francisco, introducing a bill to increase the state minimum wage over the recent boost the Legislature approved, the debate on the minimum wage is sure to heat up across the state.

Arguments over increasing the minimum wage have been going on for a long time.

Massachusetts first offered a minimum wage for working women in 1912. It did not set an actual wage. Rather, a panel was established to study complaints of low wages and if it found a company paid inadequately to cover the cost of living ($10.60 weekly for a single woman, the commission calculated), then companies were reprimanded by having their names published in local newspapers!

The U.S. Supreme Court originally ruled the minimum wage unconstitutional in 1923, but reversed itself in 1937. The next year, President Franklin D. Roosevelt signed the Fair Labor Standards Act, setting the minimum wage at 25 cents an hour and capping the work week at 44 hours.

On one of his fabled fireside chats the day before signing the bill, Roosevelt said, “Do not let any calamity-howling executive with an income of $1,000 a day … tell you … that a wage of $11 a week is going to have a disastrous effect on all American industry.”

But there is no question raising the minimum wage can have an effect on jobs. And even today there are few $1,000-a-day small business people. Small businesses often employ workers at the minimum wage. Even the strikes against fast-food companies involve small-business franchisees.

Jobs killed

As I wrote previously, “The Congressional Budget Office laid out the consequences of raising a federal minimum wage from $7.25 an hour to $10.10 an hour. Most workers would receive higher pay, some would lose their jobs, and the share of low-wage workers who are employed would fall.”

An outside economic advisor to the Los Angeles City Council warned that a steep increase in the minimum wage for hotel workers could result in a sharp decline in the number of jobs in the hotel industry.

Just last week a veterinarian I know told me that, if the minimum wage were raised to $15 an hour, he would probably have to cut his staff of eight in half.

In Berkeley, the University of California is ignoring the city of Berkeley’s minimum-wage requirements for students involved in their work-study program. The school is attempting to meet student-worker needs while living within a budget, much like businesses.

Ineffective

Before Congress last year, James Sherk, senior policy analyst in labor economics for the Heritage Foundation, testified, “Supporters of the minimum wage intend it to lift low-income families out of poverty. Unfortunately, despite these good intentions, the minimum wage has proved ineffective at doing so. … Higher minimum wages both reduce overall employment and encourage relatively affluent workers to enter the labor force. … Minimum wage positions are typically learning wage positions — they enable workers to gain the skills necessary to become more productive on the job.”

Proponents of an increased minimum wage, however, argue that many of the minimum-wage workers are not entry-level workers, but workers who have the job to support their families.

A possible outcome of the minimum wage debate may produce a third way. Call it “job wage classification”: for example, increasing pay for some minimum-wage jobs, but keeping a lower cap on other jobs for new workers so they can enter the job market.

American Samoa

While states were once called “laboratories of democracy,” we look to the territory American Samoa as a laboratory conducting an experiment in the effects of a big minimum wage increase.

Here is a summary of that experiment offered in Sherk’s testimony last year before the United States Senate Health, Education, Labor and Pensions Committee:

The recent experience of American Samoa dramatically illustrates how wage increases reduce employment. The tiny Pacific island chain has been an American territory for over a century. However, American Samoans have a largely separate economy and considerably lower incomes than residents of the continental United States: the average Samoan worker made $12,000 in 2009. The tuna canning industry makes up a significant portion of their private sector.

Until recently American Samoa had a different minimum wage schedule than the continental United States. A committee within the Department of Labor set Samoan wage minimums according to local economic conditions. In January 2007 the minimum wage in the canning industry stood at $3.26 an hour. Unfortunately for American Samoa, Congress applied the 2007 federal minimum wage increase to the territory. The legislation aligned the Samoan minimum wage with the U.S. rate of $7.25 an hour in 50 cent annual increments.

Almost every hourly worker in the tuna canning industry makes less than $7.25 an hour.  At that level the minimum wage would cover 80 percent of the islands’ hourly workers. This would be the economic equivalent of raising the minimum wage to $20.00 an hour in the continental U.S.

By May 2009 the third scheduled minimum wage increase in Samoa took effect, rising to $4.76 an hour and covering 69 percent of canning workers. This did not increase purchasing power, stimulate demand, and raise living standards, as many minimum wage proponents theorize. Instead, StarKist — one of the two canneries then located in Samoa — laid off workers, cut hours and benefits, and froze hiring.  The other cannery — Chicken of the Sea — shut down entirely in September 2009.

The Government Accountability Office reports that between 2006 and 2009 overall employment in American Samoa fell 14 percent and inflation-adjusted wages fell 11 percent. Employment in the tuna canning industry fell 55 percent.  The GAO attributed much of these economic losses to the minimum wage hike.

The Democratic Governor of American Samoa, Togiola Tulafona, harshly criticized this GAO report for understating the damage done by the minimum wage hike. Testifying before Congress, Gov. Tulafona objected that “this GAO report does not adequately, succinctly or clearly convey the magnitude of the worsening economic disaster in American Samoa that has resulted primarily from the imposition of the 2007 U.S. minimum wage mandate.” Gov. Tulafona pointed out that American Samoa’s unemployment rate jumped from 5 percent before the last minimum wage hike to over 35 percent in 2009. He begged Congress to stop increasing the islands’ minimum wage:

“We are watching our economy burn down. We know what to do to stop it. We need to bring the aggressive wage costs decreed by the Federal Government under control. But we are ordered not to interfere. … Our job market is being torched. Our businesses are being depressed. Our hope for growth has been driven away. … Our question is this: How much does our government expect us to suffer, until we have to stand up for our survival?”

Samoan employers responded to higher labor costs the way economic theory predicts: by hiring fewer workers. Congress hurt the very workers it intended to help. Fortunately, Congress heeded the Governor’s plea and suspended the future scheduled minimum wage increases.

4 comments

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  1. Timberrrrrr......
    Timberrrrrr...... 8 December, 2014, 18:04

    Let’s think about this for a minute, friends. There are thousands and thousands of college grads who spent 4 years and 1000’s of dollars to earn a degree. Most are heavily in debt. About half the college degrees are near worthless in the employment markets when it comes to earning power. Yes, 50%. Those people will be working for MAYBE $20/hr. and consider themselves lucky to have a job. Now they want to give some guy with a 9th grade education (or less) who shakes the fry basket at Mickey Dee’s a guaranteed $15/hr., only a $5/hr. differential from the guy who graduated from college. Do you think that’s fair? College is supposed to prepare young people for an occupation. Do you think people will continue to go to the trouble and expense to get a higher education when they guy bussing tables or buffing chrome at the Ajax Car Wash will make practically as much as he does? Would you? This nation has jumped the shark in SO many ways. They’ve screwed us seven ways to Sunday. All the decent jobs for the common people have been shipped overseas. And whatever jobs are left over they’ve imported slave labor from down south to work them. Even the hi-tech jobs are going to the Indian and Asian foreigners who work at much lower wages. None of this will end well. None of it.

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  2. Timberrrrrr......
    Timberrrrrr...... 8 December, 2014, 21:38

    Let’s take a journalism major, for instance. How much is that worth in the US economy today? Chime in, CWD reporters! You are probably pretty lucky you landed a job at CWD and I bet you don’t make very much coin. You probably have to write for 5 or 6 different publications to make ends meet, doncha? Journalism used to be a decent major. But with all the newspapers dying and on shoestring budgets it’s unlikely to find a decent position at one unless your dad happens to be the editor. And in today’s politically correct world you can’t really write what you truly think. You’re conditioned to please the editor and follow the drill. A lot of reporters are forced to write stuff that totally runs against their grain for a living. Not too healthy for a self-esteem, is it? And journalism is a cut above majors like sociology, psychology, minority studies, humanities, human services, history, anthropology, philosophy, fine/liberal arts, music, English Lit, etc… If you spend 1000’s of dollars and your time to get one of those majors you’d better hope that you’ve got a connection who can get you a job in government. Otherwise there’s a 90% chance you’re screwed and will be working alongside the fry cook at JITB for $15/hr.

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    • Bill Gore
      Bill Gore 10 December, 2014, 09:21

      I get it Timberr, many business owners HATE paying their employees, and consider it their birthright to get dirt cheap, slave labor. And if those full-timers are pulling benefits such as SNAP, WIC, Section 8 housing, etc etc who cares? Of course, lurking in the background is the maxim that “if you pay peanuts, you get monkeys.” Fact is real wages have been stagnant to shrinking for about 25 years. Fact is the national government is deliberately flooding the country with unskilled labor (SO humanitarian..) pushing down wages while raising housing costs. Instead of focusing on the fairness argument, viz-a-viz the non-marketability of most college degrees, smart young people, IMHO should REALLY start looking at the skilled trades and agriculture. Yes, I said agriculture. Most farmers now are over 60. The fundamentals for SMART, well-run farming operations have never looked better. But kids now are so conditioned to think they have to be ‘smart’ google yuppies…..

      Reply this comment
      • Timberrrrrr......
        Timberrrrrr...... 10 December, 2014, 10:23

        Bill, you mean that there are still family owned farms? I thought big business bought them out decades ago. To buy farm land you have to be filthy rich, Bill. Today you’ve got 5% of the nation with about 90% of the wealth. And that 5% wouldn’t get dirt under their fingernails working on a farm. You know that. They make their money by taking it from other people (ie. Wall Street crooks). I agree that employers should pick up more of the employee salaries and benefits. It’s unfair to pay them slave wages and then expect the taxpayers to subsidize their food, housing, medical care, etc…. But read my previous comment. You’re going to get to the point that employers pay someone with a 9th grade education almost as much as a college grad who spent $50,000 to get his or her degree. Hell man. THAT’S COMMUNISM!!! Do you get my point? So if Jose the fry basket shaker gets a raise to $15/hr., the college grad making $20/hr. should get a raise to $30/hr. Right? Would that happen? Not a snowballs chance in hell, my friend. And therein lies your problem. Do you want fry basket shakers making as much as college grads? Well, do you???

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