Beyond the Minimum Wage: New Policies to Raise Wages

The reality for working Americans is that wages have been largely stagnant for over three decades.   For many workers -- especially those without a college degree -- pay has actually gotten worse, meaning that this generation is the first one in American history which is not doing signficantly better than the previous one.  Part of the reason for these stagnant wages is that inflation was allowed to erode the federal minimum wage-- its inflation-adjusted value dropping from $9.12 per hour in 1968 down to just $5.15 per hour in 2005.  

This wage loss has been mitigated a bit in the last couple of years as, despite federal inaction, many states have raised their minimum wage rates

  • Just this last week, the California legislature approved an increase in that state's minimum wage to $7.75 per hour by 2008. 
  • Massachusetts is poised to raise its rate to $8.25 per hour, which would be the highest state minimum wage in the country.  
  • The City of San Francisco now has a minimum wage of $8.82 per hour and other cities have also raised their wage rates above their states' level. 

As more and more states raise their minimum wage rates, we are beginning to move towards restoring the minimum wage to at least its 1968 level.

But beyond the basic minimum wage, there are additional policy tools that states can use to raise wages, not just for the lowest-paid workers but for a much broader range of Americans. As this Dispatch will detail, state and local governments are increasingly leveraging government contracts and economic development funds, using regulation of wages in specific industries, and promoting employee free speech rights as tools to restore the American Dream of rising wages throughout the economy.

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Using Government Contracts to Raise Wage Levels

One of the oldest tools of government for raising wages is requiring that companies doing work on behalf of the public pay a wage that reinforces strong wage standards for that industry.   With the privatization of many public services in recent decades, state and local governments now purchase over $400 billion of goods and services from the private sector, so conditioning those purchases on contractors meeting decent wage standards can have powerful effects in strengthening wage standards throughout the economy.   Such contract standards include a variety of approaches:

Prevailing Wage for Public Works: Predating even the minimum wage are laws at the federal government and thirty-three states which require that work done on public works -- transit and public building construction primarily -- meet "prevailing wage" standards, usually the union wage for any occupation, thereby strengthening the high-wage construction industry in the United States. (See here for a history and survey of prevailing wage laws around the country from the Ohio Legislative Service Commission.)   Some critics worry that prevailing wage laws might drive up costs for state government, but, in fact, most studies show that paying a decent wage leads to a more skilled workforce, less turnover and higher quality work-- and ends up saving the government money over the long term. 

Prevailing Wage Laws for Other Government Contracts: While less common, state and local prevailing wage laws have been extended in a number of states to other kinds of government contracts.   A number of state and local governments, such as  Denver and New Jersey in a recent 2006 law (Chapter 379) cover janitors and other building service workers under a prevailing wage law.  Illinois has a separate Procurement Code that sets prevailing wage rates for janitorial, window cleaning, food service and security service workers in the state.  

Living Wage Laws:  An alternative model to prevailing wage laws -- which set separate wage levels for each occupation -- are the living wage laws enacted in over a hundred cities and counties around the country, which require that all government contractors pay at least a living wage, usually on the order or $10, $11 or $12 per hour plus health care benefits.   The Maryland and California legislatures approved state living wage bills in 2003, only to see them vetoed by their governors, but state and local government continue to push forward with living wage legislation.   Notably, the local governments that have implemented living wage laws have seen little if any increased costs from requiring increased wages by contractors, according to a number of recent studies (see here and here), and have often saved money since the employees of contractors are less likely to end up needing local welfare or health care services.

Wage Requirements on Government Leases:   A number of governments have attached living wage requirements to businesses leasing government property, including airports in a number of cities such as Oakland, Los Angeles and San Francisco.   And the results can be dramatic; a recent research report found that the proportion of San Francisco airport workers earning under $10 per hour fell from 55 percent before the ordinance was enacted down to just 5 percent afterwards -- and the cost to the businesses effected was just 0.7% of revenues.

Leveraging Economic Development Funds: With state and local governments handing out over $50 billion in state and local subsidies to promote economic development, those governments have powerful leverage in the labor market when they require that recipients pay a decent wage.

  • Just in the last few weeks, Idaho began requiring that any business receiving "Workforce Development Training Funds" to train new employees must use that money to create jobs paying at least $12 per hour, plus benefits.
  • Virginia earlier this year passed S 109 (waiting for governor's signature) a bill that requires that jobs created under its "Governor's Development Opportunity Fund" pay at least the average wage paid all workers in the county where the jobs are created. 
  • And California in 2001 passed SB 975, sponsored by Sen. Richard Alarcon, which requires that any construction funded with public money, including most tax credits and tax-exempt bonds, must pay the state's prevailing wage to employees.  

Forty-three states, forty-one cities and five counties attach some wage requirements to at least one subsidy program, although most subsidy programs unfortunately still have no wage requirements, highlighting the need for more comprehensive legislation in each state.

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Regulating Wage Standards for Selected Employers

Even where no public money is involved, a number of cities and states have begun establishing higher minimum wage rates for specific industries and defined groups of employers.  In a sense, this is less a new policy innovation than a return to past practice, when both the state and federal government established different minimum wage levels based on both the industry and the size of the firm where a person was employed. (As an example of this, see this chart of federal minimum wage rates for various industries over time).

As the federal minimum wage plunged to its present $5.15 per hour level, such differentiated wage levels disappeared, but it's appropriate as states and local governments move forward on new wage laws to consider what industries can thrive with higher wage rates than the basic minimum wage.   With that analysis, a number of governments around the country have been reviving higher wage rates for selected industries:

Tourist Zones: In 2000, the City of Berkeley enacted an ordinance to require firms operating in its pricy Marina tourist zone to pay at least $9.75 per hour plus benefits to their employees. Evaluating the law, the US Ninth Circuit Court of Appeals ruled in 2004 that it was quite appropriate for “a number of large businesses that occupy and profit from prime real estate" to be required to pay a wage higher than the standard minimum wage.

Larger Businesses: In 2003, the City of Santa Fe enacted an ordinance requiring all businesses with twenty-five or more employees -- roughly 9% of employers in the town -- to pay a higher minimum wage, a rate increasing from $8.50 per hour in 2004 to $10.50 per hour in 2008, after which the rate will be indexed to inflation.  Again, New Mexico's courts found it completely reasonable for the city to set a higher minimum wage rate for larger employers in the city.   Similarly, the recent Fair Share Health Care law enacted in Maryland requires very large firms to pay health care benefits on top of the state minimum wage, de facto a higher wage rate for employees in those large firms.

Specific Industries: Governments are increasingly evaluating what minimum wage rates are appropriate for specific industries.

  • Last November, Emeryville, CA approved a ballot measure to require hotels with at least fifty rooms in that city to pay each employee a minimum of $9 in compensation per hour and an average wage of $11 per hour for all employees.
  • With so much national focus on Wal-Mart, a number of governments are considering measures to set a higher minimum wage rate for big box retail stores.   In Chicago, 33 out of 50 city council members have endorsed a ground-breaking ordinance, sponsored by Alderman Joe Moore, that would require large retailers with at least a $1 billion in annual sales to pay their employees at least $10 per hour plus $3 per hour in benefits, what would become the highest minimum wage for a private employer in the country if enacted.  Washington, DC is considering a similar bill and New Jersey is beginning to discuss following the same approach.

In each of these cases, careful analysis showed that these groups of employers could absorb a higher minimum wage that would thereby put more wages into the hands of workers and the local economy.

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Helping Workers Negotiate Higher Wages

Beyond directly regulating wage rates, one of the most effective ways for governments to raise wages is to help protect employees' free speech rights and their freedom to form unions so they can negotiate higher wages on their own behalf. Union workers earn 29 percent more than nonunion workers, so helping promote unionization should be a focus for policymakers in raising wages for workers.

While there are some restrictions under federal labor law on what state and local governments can do in this area, there are still many policies they can enact that will strengthen workplace freedoms and help encourage higher wages. Some examples include:

Extending Union Rights: Many categories of workers, including farmworkers, domestic workers, public employees, and independent contractors, are excluded altogether from protection under federal labor laws, so states have the power to extend union protection to these employees.   Examples include California labor law for agricultural workers, which was recently strengthened with new amendments and a "Domestic Workers Bill of Rights" (A2804) being promoted in New York to bring domestic workers under the protection of state labor law.

An important new reform in a number of states is extending labor rights to workers like child care and home health care workers, who are often treated as independent contractors without union protection.

  • During the last decade, California, Washington and Oregon extended union rights to home health care workers.
  • Last year, Illinois Governor Rod Blagojevich signed an executive order to allow 47,000 day care workers to organize themselves into unions and collectively bargain with the state on behalf of those workers.
  • New York Assemblyman Adriano Espaillat, a member of Progressive States' board of directors, successfully passed a landmark bill protecting labor rights for day care workers. Now, he's working alongside labor leaders, workers, and anti-poverty advocates to get Governor Pataki's signature on the bill and turn it into the law of New York State.

Protecting Worker Free Speech: Laws that protect workers from retaliation for speech in the workplace or strengthen their ability to talk to other employees or the public help encourage them to work collectively to raise their wages and improve working conditions:

  • Florida’s new state minimum wage law, the city minimum wage laws in San Francisco and Santa Fe, and many living wage laws across the country include protections for employee who educate other workers about their rights under those laws.
  • California law prohibits discrimination against workers based on their political beliefs
  • The Colorado legislature this year approved a law, which was vetoed by their governor, which would have protected workers against being coerced to attend employer-controlled forums related to religous and political matters
  • A number of states have whisteblower laws to protect employees against retaliation for speaking out about illegal activity or threats to the public by their employer.

Increasing Union Access to Employer Property: States can also promote the freedom to form unions by giving union representatives more access to employer property to educate employees about their labor rights and encourage them to negotiate for higher wages:

  • Massachusetts, California and a few other states give farmworker advocates access to agricultural fields to talk to the workers about their labor rights.
  • States including California, Colorado and New Jersey require mall owners to give union organizers, as well as others, access to sidewalks, parking lots and interior public spaces.
  • The City of Hartford in 2004 enacted a law giving the general public access to outside areas of retailers on government-owned property.
  • Similarly, the Chicago "Big Box" ordinance discussed above has a provision that would give members of the public, including union representatives, the right to talk with store employees or other customers in public areas of retail stores covered by the ordinance.

Any of these policies that encourage workers to speak to each other and the public about their work conditions will help strengthen their ability to work together to negotiate higher wages for themselves and their coworkers.

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Policies to raise wages should be a linchpin of progressive leadership. A higher wage is the best anti-poverty program and a key "pro-family" policy to allow parents to be able to work fewer hours and have more time with their families. It is also one of the best local economic development tools through increasing the consumer spending of workers receiving a higher wage.

Three decades ago, our national leadership began losing focus on such policies and the resultant collapse of wage standards has undermined support for progressive leaders during that time.   As this Dispatch outlines, elected leaders and community organizations have begun reversing that decline and we all have a range of policy options to help raise wages for working families and restore the American Dream that the next generation will be better off than our own.

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Myths & Facts

Myth: Prevailing Wage and Living Wage Requirements Cost Too Much

  • Fact:  In fact, increased contract costs are usually minimal and sometimes nonexistent, as numerous studies show.  (See here, here and here).  Government contracts are often lucrative and competitive bidding means contractors absorb some of the increased labor costs.  Higher wages also improve retention and thereby improves the skills of workers on such contracts, increasing productivity and decreasing costs.

Myth: Wage Regulation Costs Jobs

  • Fact:  Extensive analysis in multiple states by scholars like David Card and Alan Krueger and groups like the Economic Policy Institute have documented that minimum wage increases have little effect on employment but large effects on improving the lives of working families.  In fact, there is good evidence that by increasing the purchasing power of working families, wage regulation can increase employment, especially in lower-wage communities that most need it.

Myth: It's Illegal to Impose Wage Regulations on One Industry or a Specifc Group of Employers

  • Fact: Multiple courts, including in New Mexico and California, have emphasized that US Supreme Court precedent establishes that wage regulation in a single industry, or even a subset of firms within an industry, is perfectly legal and often appropriate, since economic policy often needs to be flexible in setting different wages rates depending on the size of the firm or the needs in particular industries.