The Federal Minimum Wage is on the Chopping Block

Back in 2013, the Obama White House put out a fact sheet detailing the impact of raising the minimum wage to $9. Eventually the President realized the GOP didn't want to play ball so he did the only thing he could do and raised it for Federal contractors  (to $10.20/hour).

At the time there was some contention about minimum wages lowering employment and at the same time not affecting any significant number of workers.

But as the linked fact sheet shows, most research has found no significant negative impact of minimum wage hikes on employment thanks to the monopsonization of our workforce.  Furthermore, raising the minimum wage from $7.25 to $9 for 5 million people has a direct impact on the wages of 10 million other people as well (those between $7.25 and $9). There may also be an indirect spillover as minimum wage workers increase consumption and therefore wages in other sectors also rise but that typically takes a bit of time to unfold. This is what the White House referred to as the "ripple effect."

Jump ahead 4 years to today and the opposite proposal is coming from our incoming government. They want to axe the minimum wage entirely. They cite statistics from the BLS showing that the number of minimum wage workers has fallen below 3 million people and they claim the states can deal with that <1% of the population. What they ignore are the 20.6 million people who are near-minimum wage. While under 3 million people are earning $7.25 or less, 10 million people earn between $7.25 and $9, and another 8 million people earn between $9 and $10.10 per hour.

So who would be affected by the reverse?: While 29 States plus DC have minimum wages above the Federal minimum and therefore wouldn't be affected by this, 21 states are at or even below the Federal minimum. So those 3 million or so workers are mostly clustered in those 21 states.  And just as others would find their wages rising when the minimum wage increases, so would we see the wages of others falling when the minimum wage decreases. As a result, at least 10 million people would immediately be looking at a smaller paycheck once the repeal is enacted. Who would be worst off?

Idaho, Iowa, Kentucky, New Hampshire, North Carolina, North Dakota, Pennsylvania, and Wisconsin all have State Minimum Wages at the Federal level of $7.25. So workers in those eight States will not be directly impacted.

And Indiana and Kansas use the Federal Minimum but have a sub-minimum wage of $4.25 for teenagers. That brings us up to 10 of the 21 that will not be directly impacted.

Major impacts on wages will be felt on the following States:
Georgia and Wyoming have a State Minimum Wage of $5.15. And Alabama, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, Texas, Utah, and Virginia all use the Federal Minimum Wage but do not have a State Minimum Wage -- which means they basically view $7.25 as a ceiling and not a floor.

And using BLS statistics,  what we can see is that 20% of the workers in those 11 states will see their wage fall. The only one of those 11 states that has a Democratic governor who wields enough power to prevent a collapse of the wage structure is Virginia. Workers in the other 10 are in big trouble. 

Exploring the minimum wage

With the basic economic theory of supply and demand, anyone can look at the price of a good or commodity and see that less of it will be demanded as the price rises. That eventually causes an oversupply so prices will have to fall. Think about what will happen when Nintendo finally increases the supply of NES Classics (but probably long after the holiday craze has worn off).  As of this post, the price on Amazon is $225, but the MSRP is just $60. As supply picks up and meets demand, prices will eventually adjust back to $60.

Taking it a step further, we can add a price control that artificially keeps prices high (or low). Think about farm subsidies (or rent control).  That basic economic theory states that if the market isn't able to clear because of some outside interference, then the market will be inefficient and is therefore unquestioningly a bad thing.

So what does economic theory say about the minimum wage? Following the basic theory, we can consider a minimum wage to be a price control that artificially sets wages above equilibrium. That means there will be fewer "buyers" of labor. So many point to that and say it clearly leads to job losses.

But how does that actually stack up in reality? We've raised the minimum wage dozens of times over the last century and there has not been a single time in which an increase in the Federal Minimum Wage has led to job losses. But this isn't anything new.  Back in the 1990s, two economists began working on a study that compared different minimum wages across state lines. What Card and Krueger (AER, 1994) found was that an increase in the NJ minimum wage had no significantly different shifts in employment relative to next-door PA which operated at the Federal minimum.

OK so what gives? As it turns out, minimum wage jobs are not desirable (imagine that!). Without getting into the more complicated monopsonistic economic theory, let's think about what would happen if there was a town that had only one employer. And if it was a pretty lousy employer offering a very low wage so nobody really wanted to work for them.  Some people would have to do it because they really needed the money. But many would decide it wasn't worth it and instead would start their own business or chose to make money Ubering or reselling NES Classics on eBay. If the wage increased, some of those people might now decide it would be worth while to actually apply for the job. That would be an increase in labor supply.  The people coming into the market now would be slightly better off (and more skilled) than those that were already in the market initially. And so with that increase in wage, the average level of productivity would begin to rise.  That means the company would actually end up doing a little better and, in turn, begin to hire more workers.

The lesson here is that the economy is not static -- it's always changing. And if the government can enact policy that increases worker productivity, that's almost always a good thing for economic growth. Let's hope we end up with some real economists advising the President on fiscal policy and not Meatloaf.

Can the States Protect Us?

I honestly don't know the answer; since the beginning of time, mostly for pretty nefarious reasons, including in recent years, have used the term "states' rights" and thrown around the Tenth Amendment to justify things like slavery, Jim Crow, and resisting federal measures like environmental regulations and the Affordable Care Act.

Now, the shoe may be on the other foot, though we're in very strange and extreme territory, given that we've elected an unabashed fascist who is planning acts that are beyond the pale, including going door to door and rounding up immigrants, demonizing entire groups of people, and deporting American citizens.

So far, I've seen two states saying they're ready to step up and protect us against the looming storm.

One is New York, where Governor Andrew Cuomo has been issuing a number of messages such as this one:

Those of us who have spent time in politics know that losing is part of the experience. Still, Secretary Hillary Clinton’s defeat on Tuesday was a particularly difficult experience, heartbreaking and bewildering and indeed frightening all at once. I wanted to share some thoughts on how we must acquit ourselves in the days ahead.

As Clinton said, when Donald Trump takes office, we will owe him an open mind and a chance to lead. The fate of the ship always takes precedence over the identity of the captain, and we must loyally do our part to protect the ship.

The night he became commander-in-chief, Donald Trump said he wanted to be President of all Americans. Despite the divisiveness of the campaign, he has an opportunity to live up to that promise by acting first on issues where there is common ground with his opponents. He said he wants to govern on behalf of forgotten Americans, and any time he does that, he can count on both Democrats and Republicans to help him achieve success.

Trump also said that he wants to rebuild America’s infrastructure. In that effort, he will find New York a willing partner as the Tappan Zee Bridge, a new La Guardia Airport, a new cross-Hudson Tunnel, and a revitalized Penn Station continue to rise.

But while we honor America by honoring the results of the election, we will fight as fiercely as we can, at every opportunity that presents itself, to reject the hateful attitudes that pervaded throughout the 2016 campaign. We cannot unhear what we have heard. The voices of the Ku Klux Klan, white nationalism, authoritarianism, misogyny and xenophobia. A generally disdainful view of American ideals.

We all hoped that when we woke up on Nov. 9 the ugliness of this campaign season would finally be gone. But on the day after Election Day, a swastika and the words “make America white again” appeared, spray painted on a softball dugout in Wellsville — in our state of New York.

 I cannot and will not pretend that these things are normal even if millions of Americans voted for a campaign either because of these values or in spite of them. I know there are millions more people like me — both Democrats and Republicans who reject them. As I said on other occasions, this election was for the soul of America, and that is why today so many of us feel as we do today; we are soul sick. But as we accept the results of the election, we do not accept these positions.

Americans fought these attitudes before the 2016 election, and we will fight them for as long as it takes to vanquish them. That is our mission, and our dedication to its success does not depend on the occupant of the White House. Americans pledge themselves to “one nation, indivisible, with liberty and justice for all.” One election does not erase that commitment.

We Democrats are not without resources. In Chuck Schumer and Nancy Pelosi, Democrats in Congress have leaders who are brilliant parliamentarians, and who will advance our causes even as they will provide a bulwark for our values. But let us also look to our state governments as places where progress can be made. One of the reasons why so many of the programs of President Roosevelt’s New Deal proved effective is that he had tried them out while he was governor of New York. Initiatives like Marriage Equality were enacted in New York and other states before they became the law of the land. Congress has refused to act on gun control, but we enacted a tough law in New York, and California, Nevada, and Washington strengthened their gun laws on Tuesday.
While the world struggles to come to consensus on how to combat climate change, we in New York have banned fracking and set a renewable energy standard requiring 50% of our electricity to come from renewable energy sources like wind and solar by 2030. This year in New York State, we enacted a $15-an-hour minimum wage, the nation’s best Paid Family Leave program, and dedicated more funding to education than ever before. And in this state, we accomplished these successes with a divided legislature: Democrats and Republicans coming together, proving you can be progressive and bipartisan. Indeed, there is more than one path to progress.

Soon enough we will see what proposals will find their way into the President-elect’s agenda. Already it seems almost every far-right Republican under the sun is seeing Trump’s electoral college victory a mandate to enact sweeping ideas and radical proposals, regardless of the pain that is inflicted and the turmoil that is caused. I have great faith that common sense will eventually prevail, and that our traditional American values of justice, liberty and equality will eventually rule the day.

In the end, they always have.

Both Democrats and Republicans have fought for these values throughout our nation’s history — from the time when Abraham Lincoln declared we were a nation with malice toward none and charity for all, to when a young Senator from the State of Illinois said: There’s not a black America and white America and Latino America and Asian America; there’s the United States of America. The way has not always been easy, nor has the cost been cheap; but for whatever this moment demands of us, we are ready.

My father Mario Cuomo spent his entire life fighting against the death penalty, even when it wasn’t popular, even when it cost him the governorship, because he knew it was right. I will fight against the targeting of Muslims, immigrants, the LGBTQ community, and for the rights of all Americans every day I hold office and every day after that.

For our values, for our rights, for our vision of America, for the people who depend on us, we will fight. And for that, we are unwilling to compromise. 

 

I've also seen something similar from the California state legislature:

 

SACRAMENTO – California Senate President pro Tempore Kevin de León (D-Los Angeles) and California Assembly Speaker Anthony Rendon (D-Paramount) released the following statement on the results of the President election:

 

Today, we woke up feeling like strangers in a foreign land, because yesterday Americans expressed their views on a pluralistic and democratic society that are clearly inconsistent with the values of the people of California.

 

We have never been more proud to be Californians.

 

By a margin in the millions, Californians overwhelmingly rejected politics fueled by resentment, bigotry, and misogyny.

 

The largest state of the union and the strongest driver of our nation’s economy has shown it has its surest conscience as well.

 

California is – and must always be – a refuge of justice and opportunity for people of all walks, talks, ages and aspirations – regardless of how you look, where you live, what language you speak, or who you love.

 

California has long set an example for other states to follow. And California will defend its people and our progress. We are not going to allow one election to reverse generations of progress at the height of our historic diversity, scientific advancement, economic output, and sense of global responsibility.

 

We will be reaching out to federal, state and local officials to evaluate how a Trump Presidency will potentially impact federal funding of ongoing state programs, job-creating investments reliant on foreign trade, and federal enforcement of laws affecting the rights of people living in our state. We will maximize the time during the presidential transition to defend our accomplishments using every tool at our disposal.

 

While Donald Trump may have won the presidency, he hasn’t changed our values. America is greater than any one man or party. We will not be dragged back into the past. We will lead the resistance to any effort that would shred our social fabric or our Constitution.

 

California was not a part of this nation when its history began, but we are clearly now the keeper of its future.

I have more questions than answers on this.

Immigration is an area where I think these states can step up; perhaps I'm naïve, but I just can't see Donald Trump sending ICE agents in huge numbers from door to door in New York or Los Angeles. But will these states openly continue to invite in new immigrants?

How about the following areas addressed in one or more of these letters?

Trade: How free are the states to set their own trade deals with foreign countries or violate ones made by the federal government?

Energy: Can the states block the federal government from opening up lands to extraction, particularly interstate projects like the Dakota Pipeline? Additionally, "dirty" energy companies have taken some actions to prevent renewables from taking over; what happens if they lobby the federal government to outright ban them? Renewables are a huge industry in many states.

Gun Control: The Supreme Court has certainly overruled the decisions by municipalities to control the types of weapons they can prevent from entering their communities. This could certainly get hairy... what if the federal government manages to legalize open carry everywhere, for everyone, and members of one state, say, New Hampshire, start brandishing guns in Boston?
Minimum Wage: In 2014, Oklahoma banned any local municipalities from raising their minimum wages above the state minimum wage. What would happen if the federal government abolished the federal minimum wage and then banned the states from having their own? Or even if they did the former, but not the latter? An increase of a few dollars has been shown not to affect employment levels, but what if New York has a $15 minimum wage while its neighbors have none at all?

And even beyond that, a lot of funding for Medicaid comes from the federal government, and Medicare and Social Security are totally coming from the government. It's likely block grants for Medicaid are coming down the pike, and more responsible states like California and New York will probably make that work. How about Social Security and Medicare? Can states collect their own taxes and make distributions for that purpose? Would that concept even be popular in "blue" states? See what happened in both Vermont and Colorado when they put single payer health care up for a vote.

What if federal housing and education grants disappear? Can the states make up the difference by not sending money to the federal government? In general, can we change tax policy so the residents of these states remit less in income tax to the federal government and more to the state? I'd be inclined to think that even if allowed, it would be politically unfeasible.

Boy, is John Calhoun probably laughing in his grave...