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Public Policy Divide
Mon February 24, 2014
Mixed Effects on Industry and Workers as Malloy Pushes for Higher Minimum Wage
As the pace of the gubernatorial campaign picks up, with the position up for re-election this November, Governor Dannel Malloy is making minimum wage a top priority issue. A further increase in the minimum wage is one of the most politically polarizing debates the legislature is likely to see this session.
Supporters contend that it could lift workers out of poverty, decrease turnover, and act as an economic stimulus. More money in the hands of low-wage earners means more money spent immediately on essential goods and services.
Some business owners said it will cut hiring as labor costs go up, more so in a lukewarm economy. Dale Doll, pantry coordinator at the Manchester Area Conference of Churches, interacts with families struggling to put food on the table. Since January 2014, minimum wage workers have seen a raise of $18.00 a week for 40 hours of work. Doll said the wage increase from $8.25 to $8.70 an hour is so small that it won’t make much difference.
“We do see a lot of people who have lost good paying jobs, and now are making minimum wage, and they can’t make ends meet on it,” Doll said. “They just can’t do it. It’s too expensive to live here in Connecticut. People should be paid for work that they do. But as far as a big impact, I don’t think it’ll make a big impact. It’s not going to raise a lot of people out of poverty.”
Technically, if you earn an annual income of more than $15,730 for a family of two, you’re above the federal poverty level. That number just doesn’t sound right to Keith Hicks of Manchester. He earns $11.00 an hour at his full-time job. After paying rent and gas, he said there’s very little left. "It’s hard," he said. "If you make that, and you don’t work six days plus overtime, you’re not going to survive."
Even though Hicks is happy for those workers who will now earn a slightly higher minimum wage, he’s also worried that companies will cut back on hiring. By next year, Connecticut’s minimum wage will reach $9.00. Governor Malloy is now pushing for an even higher rate of $10.10, in line with President Barack Obama’s target. “If they raise to ten, it’s going to be hard,” Hicks said, “because people don’t want to pay you no money as it is.”
According to the Connecticut Department of Labor, about four percent of the state’s labor force – that’s 68,000 people – currently earn minimum wage. That number is based on the Current Population Survey, which uses a small sample size. In reality, more people could be earning minimum wage.
But not all of them are struggling to make a living. Some, like Ally Kask, are suburban students saving up for college. Kask goes to Glastonbury High School and works at Dunkin Donuts. "Books cost a lot of money," she said. "There’s tuition, and room and board. With this, I’ll be able to save up a good amount of money. As of right now, I have earned $6,000."
A new report by the non-partisan Congressional Budget Office found that 16.5 million workers would benefit from increasing the federal minimum wage from $7.25 per hour, currently, to $10.10 per hour by 2016. CBO economists said nearly one million people could come out of poverty. They also said it could eliminate 500,000 jobs, decreasing employment by 0.3 percent.
The President’s Council of Economic Advisors, in a White House blog, strongly disagreed with the unemployment part of the report, citing Nobel prize winners. "In recent years," the blog stated, "there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market."
The issue is not so straightforward, and economists are divided. In February 2013, the University of Chicago’s Booth School of Business polled economists nationwide on whether raising the federal minimum wage to $9.00 per hour would make it harder for low-skill workers to find employment. Thirteen economists agreed that it would; 12 disagreed, and ten were uncertain.
There appears to be strong public support in favor of an increase, however. In January of this year, Quinnipiac University’s national poll found that the majority of voters (71 – 27 percent) supported raising the minimum wage.
What about businesses? Robert Michaud of Simsbury, who owns a pasta sauce business and a contracting company, said there’s no doubt labor costs will go up. "Vendors that we deal with," he said, "from where we get our materials, ingredients, and so on, as well as factories that we use -- they do have a vast majority of their employees on a minimum wage. We’re going to see their costs increase. In fact, I’ve already gotten letters stating that we would see those costs increase. They have said that given the circumstances, for us to expect some cost increases (transferred to us).”
Michaud said his companies would be able to absorb those costs, but that’s not true for everyone. “If your business is that tight, that a small increase is going to affect you so much, then you’re probably in big trouble,” he said.
So what does happen when minimum wages go up? Economist Alissa DeJonge of the Connecticut Economic Resource Center said that on average, for the state economy, increasing the minimum wage won’t make a major impact. But pockets of industries that employ a large number of minimum-wage earners will be affected. “There are some companies that will choose to hire fewer workers because of these increased costs,” she said, “and some other companies will also choose then to pass those costs on to their clients or their consumers. We have seen both things happen.”
The state minimum wage hasn’t kept up with inflation, which is tied to the Consumer Price Index. According to economists at the state Department of Labor, Connecticut’s minimum wage of $2.91 per hour in 1979 would be worth $9.95 in 2013 dollars.
In June 2013, Gov. Malloy signed into law an increase in the minimum wage from $8.25 per hour to $9.00 by January 1, 2015. The legislation was introduced on January 23, 2013, passed by the Senate (21 – 15) on May 23, and the House (89 – 53) on May 29. All Republicans in the legislature voted against the bill.
As of January 1, 2014, 21 U.S. states, including Connecticut, New York, and Massachusetts, had minimum wages that were higher than the federal minimum wage of $7.25. Washington has the highest minimum wage in the country, at $9.32. A federal wage floor of $0.25 per hour was first introduced in 1938.