Are the 2019 Minimum Wage Increases as Bi-Partisan as They Seem?

www.cafecredit.com | Flickr Creative Commons

www.cafecredit.com | Flickr Creative Commons

Like their counterparts at the turn of the Twentieth Century, the Progressive movement today has been gaining ground as voters across the country are becoming more acutely aware of a host of socio-political ills affecting the nation. Socialism is now on the rise with increased support for communitarian schemes of universal healthcare and wealth redistribution. More moderate measures such as the protection of the environment and immigration reform are also becoming increasingly popular among electors. Among these is the proposed increase of the federal minimum wage. While a majority of Americans now support an increase, the crux of the debate lies in the scale of such a rise and a disagreement on its macroeconomic implications.

Spearheaded by grassroots movements such as #FightFor15 and opposed by the incumbent President and his advisors (although not consistently), increasing the minimum wage has become a contentious issue at the national level. However, as with other policies that suffer from federal neglect, many states have taken it upon themselves to unilaterally strengthen their minimum wage provisions. While as of yet no states and few localities have committed to the clamors from the left by instituting a $15/hour minimum, many are phasing in such plans as seen with a host of new laws that came into effect on Jan. 1, 2019. However, while more than half of states now have higher than federal minimum wages, this reality may not reflect the nationwide support progressive figureheads are suggesting. 

The Minimum Wage in the United States

The federal minimum wage was first established in 1938 by the Roosevelt Administration at the height of the Great Depression. Part of the Fair Labor Standards Act (FLSA), the minimum wage provision (then set at $0.25/hour) was designed to improve working conditions by guaranteeing a decent rate of pay on which employees could survive. Along with regulations fixing the statutory workweek and restrictions on child labor, the FLSA and subsequent amendments apply the federal minimum wage to businesses making more than $500,000 in sales and engaged in interstate commerce. Since its inception, the federal minimum wage has been increased twenty-two times and currently stands at $7.25/hour since 2009.

State Minimum Wages Relative to the Federal Minimum Wage

Source: https://www.epi.org/minimum-wage-tracker/#/min_wage/Texas

As per the principles of federalism, both the states (through their 10th Amendment policing power) and the federal government (through the Commerce Clause) have the ability to legislate a minimum wage. As such, while the federal minimum wage exists as a national floor price for labor, many states have chosen to set their own minimum wage rates. This variation has produced a labor landscape where the minimum wage in states is higher, equal to, or lower (for employment not covered by the FLSA) than the federal rate, and is even non-existent in nearly half a dozen states where the federal minimum applies. As a result of these varying rates, while the U.S. federal minimum wage remains low compared to most OECD countries, the higher local rates narrow the gap, especially when examined through the lens of purchasing power parity.

The Minimum Wage Debate: Pro(gressive)s v. Con(servative)s

Being at its base an economic policy, the debate over the merits and faults of raising the minimum wage has centered on its potential macroeconomic implications, especially in respect to the most commonly assessed metrics of growth, unemployment, and price stability. Proponents of an increase assert that it would lead to greater economic growth by raising household income and spending. They argue that a wage of $9 or $10 an hour (a 24 or 38 percent increase respectively) would lead to GDP growth between $22 and $48 billion. Furthermore, lower levels of poverty tend to produce more stable homesteads, thereby facilitating educational achievement and driving long-term economic and job growth. However, the rebuttal emphasizes that the immediate reduction in employment that would occur with the increase (estimated at 500,000 fewer jobs for a $10.10/hour rate) would counterbalance this potential rise in spending and reduce overall GDP in the long run as more companies choose to use automation and outsource existing production.

 Alternatively, should companies choose to retain their workforces, higher costs in labor (the most expensive input of production) would force businesses to pass off higher costs onto consumers, thereby inflating and destabilizing prices. Even the costs of largely labor free commodities, such as housing, are likely to spike with the sudden increase in demand brought by higher incomes. While raising the minimum wage is likely to tweak price levels to some degree, its adherents point out that the current schedule of wage hikes has not kept up with historic rates of inflation with the real minimum wage having plummeted since 1968 and having lost 9.6 percent since the 2009 increase alone. In any case, supporters argue that increases in productivity and the “ripple effect” of increasing wages for those 35 million workers making slightly more than the minimum, would equilibrate prices in the long run.

The minimum wage debate has also been ideological, with progressives emphasizing social equality and conservatives defending the free market. The left argues that an increase in the minimum wage would restore balance to a system that disproportionally compensates minorities and women, who earn proportionally lower base salaries than their white male counterparts. Furthermore, rising incomes would also lead to ancillary benefits such as a reduction in preventable deaths due to the adverse conditions of poverty, and will reduce general inequality. Defending American ideals, conservatives view the ideological debate around the minimum wage as an assault on the American value of hard work, seeing the scheme as a threat to the free market. They reason that by increasing minimum wages by unrealistic proportions, the potential for upward social mobility would be reduced and many low-skilled workers would be unable to climb the ladder of success.

The States and Politics Behind the 2019 Increases

Despite the inaction of the federal government, state governments have been routinely increasing their minimum wages. As of January 2019, twenty states from all of the country’s geographic regions have higher minimum wages relative to 2018 levels, with raises between $0.05 and $1 an hour. Among them, Oregon and Delaware anticipate further increases in October and July respectively, and Michigan is set to become the twenty-first state to raise its rate this year with a planned $0.20 increase in April. Significantly, while a slight majority of those states are liberal, nine of them (43 percent) are either traditional Republican bastions or conservative-leaning purple states. At first glance, such a near-even split between differently politicized states seems to indicate that the progressive minimum wage issue has bi-partisan support. However, important to understanding the wage hikes are the reasons they were implemented and the types of legislative mechanisms used to enact them.

The raises can be divided into three groups: limited increases (under $12/hour), large increases ($12 to $15/hour), and cost of living adjustments. The first category is composed of states – Arkansas ($11), Delaware ($9.25) and Rhode Island ($10.50)– which have committed themselves to only slightly raising the minimum wage. These states are characterized by largely split constituencies where a large increase was not widely supported. Second, ten states with overwhelming liberal constituencies have raised rates according to legislative plans meant to phase in minimum wage rates that are between 65 and 107 percent of the federal minimum, reflecting progressive calls for a substantially higher base. Finally, eight other states, most with conservative majorities, have raised their minimums based on inflation in order to reflect their standing laws. Rather than reflecting progressive politics, these raises were statutory requirements.

2019 Minimum Wage Increases by Legislative Mechanism

Source: https://www.epi.org/blog/over-5-million-workers-will-have-higher-pay-on-january-1-thanks-to-state-minimum-wage-increases/

Finally, it is important to recognize how, that is, by which legislative mechanisms, states are raising their minimums. Seven states enacted their increases through ballot measures with all but one deciding to implement large increases. Since laws proposed through ballot measures are decided upon directly by voters, they tend to serve as a good gauge of popular support for policies. Unsurprisingly, those with ballot measures were all undertaken in left-leaning states. Taken in conjunction with the fact that nearly all cost-of-living adjustments were made in conservative states, some having determined this method through an earlier initiative process, the different minimum wage increases seem to reflect partisan trends. Therefore, while 2019 saw a minimum wage increase in both Republican and Democrat-leaning states, their legislative differences show that the progressive “cri de coeur” for a more than double federal minimum is not universally heard.