Navigation

State Strategies to Advance Workers’ Rights: Policy Options for 2011

Introduction: States’ Role in Improving the Quality of Work and Life

The key to emerging from the economic recession with a stronger and more stable economy is putting policies in place that promote economic security and opportunity for working- and middle-class families. While the factors that have undermined wage standards and the middle class are numerous, the basic obstacle to improving conditions for working families is a political one:  acceptance of the idea that government regulation is bad for the economy and costs jobs.  In recent years, states have demonstrated the ability of strong, values-based messaging on the minimum wage to counter this message, even during bad economic times.  States’ leadership on, for example, the minimum wage changed the national debate and made it possible for the federal government to enact an increase, even during the most anti-worker administration in decades.

To this end, Progressive States Network is highlighting labor policies that have strong public support and present good opportunities to reframe the debates over workers’ rights and the economy as values issues.  Progressives must be quick to point out that it is not our basic labor standards that have led to massive unemployment and bankrupted working and middle-class families, but rather bad business practices and lack of regulation and oversight which have let corporations run amok and redistributed wealth from ordinary, hard-working people to the super-rich.  The following sets of policies are a good start toward modernizing labor policy for today’s workforce and building a more stable foundation for the economy in the years to come:

Work-Family Balance: Paid Sick Days

No one should have to risk their job because they, or their child, get sick.  But without any laws guaranteeing workers paid sick time, one out of six people has lost a job for exactly that reason.  Even more have been forced to go to work or send their child to school sick, which public health experts agree increases the risk of spreading diseases like H1N1 or food borne illnesses.  States are leading the way in establishing paid sick days as a new basic labor standard, which will enable working people to better balance work and family responsibilities at minimal cost to businesses.  In 2010 polling, large majorities of people throughout the country and across every demographic support paid sick days, including 86% who believe that there should be a law mandating a minimum of seven days per year.

Preventing Wage Theft: Wage Law Enforcement

Workers at the low end of the pay scale are vulnerable to wage law violations, such as underpayment of wages, unpaid overtime, and being misclassified as “contractors.”  Research has shown that a large majority (nearly 70%) of low-wage workers in Chicago, Los Angeles, and New York City lose a significant amount of earned income each year to pay-related violations. Totaling $56.4 million each week in just those three cities, states are beefing up their regulations and capacity to combat wage theft.  Improving wage law enforcement makes sure that working people are paid properly, unscrupulous employers cannot take advantage of the most vulnerable and dodge employment taxes, and helps local businesses by improving low-wage workers’ incomes.  

Economic Recovery Done Right: Restore the Minimum Wage

Since 1970, the value of the minimum wage has declined by nearly 30%, and it continues to do so each year the rate is not increased.  At the same time as low-wage workers have slipped further behind, the middle class has infamously shrunk and income disparity has reached record levels, with the wealthiest 10% accounting for 50% of personal income in 2007.  States have become leaders in raising the minimum wage and shaping the national debate.  In 2011, states will take up the issue again with measures to restore the value of the minimum wage and institute annual increases to keep pace with inflation.  By shoring up our most basic labor standard, we can exit the recession with a stronger, more stable foundation for our economy in the years to come and usher in a new period of prosperity and opportunity for all.  

An Agenda for Reshaping the Economic Debate

Each of these policies not only addresses a core issue plaguing workers, families, and communities throughout the country, they provide an opportunity to reshape the debate on the economy, workers’ rights, and the role of government in creating the conditions for economic stability and prosperity.  Some states are taking them up at the same time as a coherent agenda for shaping a 21st Century labor policy.  Others may decide it is better to take them up separately or incrementally, but by keeping in mind the overall picture and developing the right messaging, it is possible for each policy to build momentum toward passing the others.
By comprising an agenda that ensures all working people can provide for their families and protect themselves from low-road employers and unscrupulous bosses, paid sick days, wage enforcement, and the minimum wage emphasize basic principles of fairness and decency that have deep resonance and broad appeal.  Where business opponents are confined to messaging that exploits fear and uncertainty, proponents of these policies can activate people’s core values, personal experiences, and common sense.

There are other important policies needed to achieve their overall objectives, which states should pursue, as well.  For instance, another core policy for work-family balance is (long-term) family and medical leave, which will cost states more to establish but has lower direct costs to businesses than (short-term) paid sick leave. Also, there are targeted ways states can raise wage and labor standards, either in particular industries or through contracting standards or collective bargaining.  And states are also interjecting their voices into trade policy, to stem the devastating effects of corporate globalization and free trade agreements that undermine local economies and tax bases.  We will be updating this Policy Options document over the next few months with overviews of these issues, as well.

Achieving Work and Family Balance: Making Paid Sick Days a Basic Labor Standard

With record high unemployment and the H1N1 virus affecting communities across the nation, public health officials are highlighting the problem of Americans who lack paid sick days to take care of themselves or stay home with sick children sent home from school.  More than 59 million workers do not have any paid sick days and more than 86 million do not have paid sick days to care for other members of their family who are ill.  What is worse, no state or federal law protects employees from being fired for taking a sick day.  Workers’ fears for the consequences of missing work when sick are real:  nearly 1 in 4 adults (23%) report having lost a job or being told they would lose their job if they missed work due to their own or a child’s illness.

As part of our multi-state shared agenda, the Progressive States Network is working with its partners and leading experts to promote paid sick days reforms in states across the country. These reforms will allow parents to take care of sick children and workers to be more productive, while protecting the overall public health and preventing transmission of diseases within the workplace.  Fully 86% of the public in polling by the Public Welfare Foundation in 2010 support enacting laws that guarantee a minimum of 7 paid sick days per year for all workers.  Support for such a law runs deep throughout the country, across all demographics, with 71% favoring such laws strongly.

With a concerted effort throughout the states, it is a policy that brings together public health advocates, unions, faith-based organizations, low-wage worker advocates, and women’s rights groups.  Such a campaign also forces conservatives to either live up to their rhetoric of “family values” and help enact the policy or choose the interests of bad employers over the interests of families.

State policy should require employers to allow workers to accumulate paid sick days based on the number of hours or weeks they have worked and allow those paid sick days to be used to take care of their own illness, that of a family member, or to deal with an abusive relationship.  While many states provide certain public employees with paid sick leave, workers in the private sector generally lack specific time off for illness.

Why It Matters

Paid sick days allow workers to be more productive, improve the general public health, and allow employees to take care of medical needs without fearing employer retaliation or losing incomes.  Although many Americans believe that they are entitled to paid sick leave for themselves or for family members, nearly 40% of working people - including more than 22 million working women - lack paid sick days, according to the Institute for Women’s Policy Research.  The burden on working parents is especially strong when children fall ill, since 70% of workers do not have the right to paid sick days that can be used to care for a sick child.  16% of workers report in polling that they or a family member have been fired, suspended, or otherwise punished or that they would be fired if they missed work due to illness.  

Fortunately, cities such as San Francisco, CA, Washington, DC, and Milwaukee, WI have successfully passed mandatory paid sick days, while 23 states have introduced variations on the bill.  All states already provide paid sick days to their own employees.  Eight states — California, Connecticut, Hawaii, Maine, Minnesota, Oregon, Washington, and Wisconsin — allow workers who already have paid sick days to use them to care for certain family members.  So moving towards paid sick days for all workers is the next step towards assuring that all families have options when they or family members fall ill.

Messaging on Paid Sick Days

Enacting paid sick days legislation is one of the most popular possible initiatives with the public, according to opinion surveys.  As mentioned above, 86% of the public (including 75% of Republicans) favor a law that would guarantee all workers a minimum of 7 paid sick days each year.  This translates politically into 47% of the public saying that they would be more likely to vote for a candidate who supports such legislation, with only 14% saying it would make them less likely to support that candidate at election time.  State polling in California, Connecticut, Maine, Ohio and North Carolina has shown similar levels of support for paid sick days legislation.

Make Paid Sick Days a Values Issue:  Proponents of paid sick days legislation should make the issue a key part of a values debate in the states.  If the issue becomes one of values, this will force conservative opponents of the legislation into the position of being seen as anti-family and not caring about public health.  Politically, it can also drive a rift between grassroots “family values” conservative voters and elected officials who choose the interests of bad employers over the interests of families.  In polls, 76% of the public found the following statement a convincing values argument for paid sick days:

In America, you shouldn't have to risk your job to take care of your family, and you shouldn't have to put your family at risk just to do your job... Our nation needs new labor standards to accommodate the needs of today's working families.  If we believe in family values, it's time to value families.

Win or lose, paid sick days campaigns are a chance to put "family values" conservatives on the record so that voters can see whether their rhetoric extends to helping parents when they need to stay home with a sick child. And with record high levels of unemployment, not supporting such legislation means endorsing employers’ right to fire that employee when they do have to miss work to take care of their child.

Public Policy Arguments in Favor of Paid Sick Days Legislation:  To cement public support for paid sick days, state leaders can emphasize a few key policy points:

Paid Sick Days Provides Economic Security for Individuals in a Recession:  With over ten percent of American workers unemployed, employees without legal paid sick days are even less likely to risk their jobs asking for a day off when sick. And with many families facing at least one member without a job or with reduced hours, most workers cannot afford to take an unpaid day off even when needed.

Paid Sick Days Helps Parents Balance Work and Family:  More than 94 million working people do not have a paid sick day to care for a sick child, yet most child-care facilities have policies requiring sick children to stay home.  Working parents with paid sick time or paid vacation days are five times more likely to stay home to care for their sick children than those without paid time off.

Paid Sick Days Promote Public Health:  When people work sick or have to send their children to school sick, this undermines both family health and the health of the rest of our communities. Yet, one poll in Ohio found that half the respondents had gone to work sick to avoid losing pay.  For, example, nearly half of stomach “flu”-related outbreaks caused by the norovirus are linked to ill food-service workers.  Viruses spread more quickly when adults and children don't stay home, while children infecting playmates and those playmates infecting their parents in turn.  All children recover faster when parents care for them and it reduces health care costs. Paid sick days would help those with chronic illness seek preventive care that would save billions, since 78% of health care dollars are spent on those with chronic conditions.

Paid Sick Days Helps Victims of Domestic Violence:  With "safe days," victims of domestic violence can gain the opportunity to take the steps needed to separate from an abusive partner.  Between 25 and 50 percent of victims report losing a job, at least in part, due to dealing with domestic violence.

Dealing with Potential Business Opposition:  While some businesses are reluctant to individually offer days off, the cumulative effect of illness spreading across the country due to people and their children not staying home when sick hurts the overall economy. It is estimated that people working while sick costs the national economy as much as $180 billion per year in lost work and productivity.  Add in the costs of children sent to school because their parents couldn't afford to stay home with them, thereby spreading illness to additional families, and the economic costs to businesses just mount higher.

While many of the established business lobbies defer to their worst employer members in opposing paid sick days legislation, there are employers who recognize that we all lose out economically when pandemics are allowed to spread because people work sick and parents can't stay home with their sick kids.  See this CLASP primer on outreach to local businesses to build business support for the policy.

What is more, evidence from San Francisco indicates that business fears about the impact of paid sick days are not just overblown - it has proved to be unfounded.  San Francisco enacted the first paid sick leave law in the country, which has been in effect since February 2007.  As they have elsewhere in the country, business groups opposed the law and predicted it would lead to significant costs to businesses and major losses of jobs, and that employees would abuse the policy.  Three years later, those groups have admitted businesses are no longer concerned about the policy and that the costs have proved to be manageable. The restaurant association is even saying that paid sick days “is the best public policy for the least cost” and that employee abuse has not been an issue.  These statements reflect evidence that San Francisco has not lost jobs due to the policy, as the city’s job market has outperformed all of the neighboring counties since the law went into effect.

And the public does not believe that paid sick days legislation will hurt businesses or their profits.  In fact, 80% of the public agrees with the following statement (and 54% find this statement "very convincing"):

Requiring paid sick days doesn't hurt employers' bottom line.  Sick employees who show up at work are less productive and they remain sick and less productive longer when they work while sick.  Also, they infect other workers and this further reduces productivity and hurts profits.

If these public concerns are continually highlighted in legislative debates, there will be little public support for the business opponents of paid sick days policy arguing it will somehow undermine the economy or individual businesses.  Instead, they will recognize that paid sick days is ultimately a benefit to the economy and to individual businesses thinking about long-term productivity.

Policy Details and Model Legislation

The National Partnership for Women & Families and A Better Balance, with technical assistance from the San Francisco Office of Labor Standards and Enforcement, have drafted model legislation for legislators to use when introducing legislation.  

Bill Summaries Model Legislation
Paid Sick Days and Safe Time Main Points Guide to Working with Paid Sick Days Model Bill Model Paid Sick Day and Safe Time Bill

Key provisions include:

  • Accrual of Days:  Under paid sick days policy, workers would accrue one hour of paid sick and safe time for every 30 hours worked (or other block of time chosen by policymakers) with some maximum amount earned each year.
  • Uses of Sick and Safe Days:  Paid sick and safe time should be available to care for a worker's own illness, to care for a family member and to address issues arising from domestic violence or sexual assault.
  • Anti-Retaliation:  One key provision in any paid sick days law must be tough anti-retaliation language to assure that employees taking advantage of their rights are not punished directly or indirectly for doing so.
  • Treatment of Small Businesses:  Policymakers may want to create a different amount of paid sick days that can be accrued for small businesses and decide how long an employee must work for a business before using paid sick and safe time.  However, while polling shows some support for requiring smaller employers to provide a smaller number of days off than larger employers, only 15% of the public thinks small business should be exempted from paid sick days requirements altogether.

Resources:
Progressive States Network- 2010 Multi-State Shared Agenda: Paid Sick Days
National Partnership for Women and Families - Paid Sick Days campaigns, model legislation, and resources
Center for Economic and Policy Research -Work-Life Policies for the 21st-Century Economy
Family Values @ Work - Why We Need Minimum Standards to Ensure a Family-Friendly Workplace
University of Chicago, National Opinion Research Center (2010 Polling Study) - Paid Sick Days:  Attitudes and Experiences
Institute for Women and Policy Research -Paid Leave resources
Drum Major Institute- Paid Sick Leave Does Not Harm Employment
AFL-CIO - Work & Family Balance Agenda

Making Sure Workers Are Paid: Modernizing Wage Law Enforcement to Stop Wage Theft

The problem of wage law violations and flat-out theft of wages from employees has become one of the most endemic crime waves suffered by Americans. Workers suffer silently as their already meager wages are reduced.   Honest employers suffer as they lose out to competition willing to violate the law.  And state budgets lose out as employers fail to pay the taxes they would have owed if they followed the law.

Progressive States Network will be working with state leaders around the country to promote policies to improve enforcement of minimum wage, overtime and related wage laws in the states.  Several states have already passed comprehensive wage enforcement legislation, while others have enacted specific provisions to augment existing regulations and practices.  PSN is conducting a survey of existing wage enforcement provisions in all 50 states to the end of helping legislators in each state tailor the model Wage Enforcement legislation and its major provisions to their state’s needs.

Wage Law Violations are Endemic for the Low-Wage Workforce

In Fall 2009, one of the most comprehensive reports on these violations, Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America's Cities, was published jointly by the Center for Urban Economic Development, the National Employment Law Project and the U.C.L.A. Institute for Research on Labor and Employment.  In their survey of 4,387 low-wage workers in Chicago, Los Angeles and New York City, the authors documented how chronic these violations are:

  • Among low-wage workers, 26% were paid less than the minimum wage and 76% of those working more than 40 hours were not paid the legally required overtime rate.
  • Authorities estimated that full-time low-wage workers lose an average of $2,634 annually due to workplace violations, out of total earnings of $17,616 -- nearly 15% of their pre-tax income.
  • Of workers complaining about the problem (about one in five in the survey), 43 percent experienced one or more forms of employer retaliation, from being fired, suspended or threatened with deportation.  Others said they failed to report the problem for fear of losing their jobs.
  • This lack of enforcement follows decades of neglect by the federal government.   In 2009, there was only one federal investigator for every 170,000 workers, a radical decrease from one investigator for every 9,000 workers in 1941.  In fact, last year the Government Accountability Office (GAO) conducted a study finding that wage theft has not been properly investigated by the Department of Labor's Wage and Hour division for years.

Promoting Model Wage Law Policies

To address this under-enforcement problem, a number of states have promoted good enforcement policies in recent years.  The following model language primarily combines provisions from Iowa's SF 2416 (approved by its Senate in 2008), Maryland's Workplace Fraud Act of 2009 and California's Labor Code Private Attorneys General Act.  In addition, Washington and Illinois this year passed strong laws against Wage Theft, and Maine and Nebraska enacted laws against employee misclassification. PSN has worked especially closely with the National Employment Law Project over the years in developing and supporting wage law enforcement language in the states.

Model Language:  Model Wage Law Enforcement Act

Key Provisions in the Model Language Include:

Create Expansive Definition of "Employer":  A chronic problem in enforcing wage laws is legal structuring of employment relationships through independent contracting or through shell subcontractors.  This allows real control and the decision to violate the law to be made by companies that do not formally employ a person.  The key is to hold any company with authority over a person's work responsible for payment of all wages, and prevent those with such authority from manipulating corporate forms and subcontracting relationships to evade legal responsibility.  The model language creates tight definitions of independent contractor as well to give greater legal protections to more employees currently falsely classified as independent contractors.

Strengthen State Powers to Enforce Wage Laws:

  • Tighten Employer Record Keeping and Employee Information:  Proving violations of the law is a challenge for the state and employees when they don't have written records of wages or of changes implemented by their employers, and where the employer fails to keep records that can provide documentation of problems.  Laws should require that employees generally be informed at the time of hiring what their wages will be, of any changes in those wages, and require employers to maintain wage records for three years.
  • Increase Civil Violations Collected by State:  States should define a violation as any week when an individual employee is not paid a legally required wage, so that employers will be assessed heavier fines for chronic week-after-week violations of the law. Chronic violators of the law will face increasingly steep civil fines, thereby creating a strong deterrent.
  • Strengthen Power of State Investigators:  State officials should be able to investigate employers suspected of illegal activity in the absence of a written complaint by an employee. A number of states have discovered large numbers of employers engaged in illegal activity by undertaking financial analyses that were then followed by investigations identifying failures to pay wages due to employees. By removing the requirement for a written complaint, employers will also have no reason to automatically suspect there was a complaint and try to retaliate against employees.

Prevent Fly-by-Night Owners from Avoiding Liability for Unpaid Wages:  To ensure that employees can collect their wages, the law should allow workers to directly sue large shareholders who abuse bankruptcy laws to avoid payment.

Help Employees Enforce their Rights:

  • Increase Damages Collected by Employees:  Given the relatively low wages involved in many wage disputes, many employers treat the (rare) payment of damages as a cost of doing business -- a cost that is easily offset by the savings from paying sub-legal wages to employees too intimidated to come forward to demand fair wages.  For this reason, increasing damages for employees who do win in court is critical to creating an effective deterrent to illegal behavior.  To create tough deterrence, some states already require that employers caught violating the law pay double damages on top of the wages not paid, plus any legal fees incurred to collect those withheld wages.
  • Prevent Retaliation Against Employees: Beyond protecting confidentiality of complainants where possible, states should provide for significant fines and financial damages for employers who retaliate against workers, either those who directly complained about lost wages, educated other employees about their rights, or testified on their behalf.
  • Create Private Right of Action for Workers Misclassified as Independent Contractors to Enforce Their Rights: States should explicitly give workers illegally misclassified as independent contractors the right to bring court actions and collect increased damages when such abuses occur.
  • Allow Private Attorneys General to Act:  Provisions modeled on California's Labor Code Private Attorneys General Act can allow present and former employees to collect not only damages for unpaid wages, but also enforce state civil penalties, raising funds for state budgets while paying aggrieved employees twenty-five percent of the civil penalties collected.

Additionally, Illinois’s new wage theft law includes a provision for expedited enforcement proceedings for small wage theft claims (see Section 10 of SB 3568).  The law authorizes the state Department of Labor to adjudicate cases involving alleged violations of less than $3,000 per employee.  Such a procedure would make it possible for low-wage workers to receive relief more quickly than through the courts.

Messaging on Wage Law Enforcement

Wage law enforcement is both needed policy and a strong political message that state leaders are upholding the law and wage standards.

Wage Law Violations Are Endemic in the Low-Wage Workforce:  Along with documentation in the  Broken Laws, Unprotected Workers report, earlier surveys have also found pervasive violation of workers' rights:

  • The U.S. Department of Labor found in 2000 that 60% of US nursing homes routinely violated overtime, minimum wage, or child labor laws.
  • Another 2004 study using DOL data found that 54% of contractors in the Los Angeles garment industry violated the minimum wage law.
  • And in 2005, a survey of hundreds of New York City restaurants found that more than half were violating overtime or minimum wage laws.

Wage Law Enforcement Levels the Playing Field for Honest Employers: Companies violating wage laws gain an unfair competitive advantage over employers who follow the law.   Strengthening enforcement will benefit employers who obey the law and pay their workers fairly.  Business for a Fair Minimum Wage note that higher wage standards can even boost local economies as workers spend increased wages locally.

Wage Law Enforcement Is a Values Issue: Organizations like Let Justice Roll and Interfaith Worker Justice stress that paying workers a fair wage is supported by religious and community leaders across the country.

Wage Enforcement Can Be a Revenue Raiser for Strapped State Budgets: State governments lose billions of dollars in revenue each year by failing to enforce state wage laws.  A California Joint Enforcement Strike Force on the Underground Economy was created over a decade ago and a 2005 state labor department report found that in one year, various agencies investigating labor and pay reporting violations collected over $100 million in citations and assessments.  A February 2007 report by Cornell University researchers estimated that 704,000 of the seven million private-sector workers in New York state were misclassified as independent contractors, costing the state $175 million in unemployment insurance taxes each year.

The bottom line is that, by enforcing existing wage laws, states can raise hundreds of millions of dollars in revenue, as they also raise wage standards for all workers.
With low-wage workers facing multiple challenges in the current economy, wage law enforcement is a critical tool in preventing illegal work conditions from further undermining their living standards.  By creating a level playing field, wage law enforcement creates a fairer workplace for both workers and honest employers.   And by undercutting the underground economy, it can raise revenue for state budgets severely under strain.

Resources: There are a few key resources and organizations supporting wage enforcement campaigns, including:

For dealing with the misclassification of independent contractors, see NELP's 2009 Independent Contractor Round-Up.  For information specific to the construction industry, including news on construction-specific misclassification bills, see the National Alliance for Fair Contracting.

On the Benefits to State Budgets from Wage Law Enforcement:

Research Reports on Wage Law Violations:

Improving Wage Standards: Restoring the Minimum Wage

In the last decade, the states have emerged as leaders in raising the nation’s wage standards.  Faced with an unprecedented period of inaction by the federal government and a precipitous decline in the real value of the minimum wage, states reshaped the national debate and overcame staunch opposition by raising this most basic workplace standard to a powerful, values-based issue: “No one who works full-time should be forced to live in poverty.”

States like Washington and Connecticut enacted large increases in their minimum wages, raising the floor to over $7.50 per hour -- more than 50% higher than the federal standard at the time.  Ten states not only increased their minimum wage, but did so with a requirement that the rate be adjusted every year with inflation in order to prevent low-wage workers’ incomes from sliding backward again.  What is more, this wave of state activity began during the bad economic times of the dot-com bust and the recession of 2001-02, and despite opposition by business organizations across the country who promised that raising the minimum wage would raise unemployment and cause more pain than gain.  

In 2011, states are picking up the mantle again.  For, while the goal of rebuilding the middle class remains powerful in American political life, it will be impossible to achieve without raising the bottom end of the pay scale and narrowing the record-high income disparity that has developed since the 1960s.  Two steps are necessary:

Raise the base value of the minimum wage.  This will set the wage floor at a level that, historically, reflected a large and robust middle class.

Index the wage rate to keep pace with inflation each year.  The last forty years has shown us that, as political priorities and circumstances change, the consequences of letting wage values stagnate are too high.  Accounting for inflation each year makes the cost to businesses predictable and gives working families a measure of economic security they desperately need, especially in times like this.  

Background

There is good reason for states to take the lead on raising the minimum wage again:  after more than 40 years of wage stagnation, even the recent, much-needed advances are not enough to lift low-wage workers out of poverty.  At $18,310 this year, the federal poverty level for a family of three is more than 20% higher than what a minimum wage worker would make, working full-time and taking no time off.

Even more telling is the precipitous, 40-year decline in the real value of the minimum wage since its peak in 1968, which was worth $10.00 per hour in 2010 dollars.  That means even workers in Washington state, who enjoy the highest minimum wage in the country at $8.45 per hour, still bring home paychecks worth 15% less than even the lowest-paid workers in the U.S. were bringing home four decades ago.  

The decline in wage values parallels a sharp increase in the degree of income inequality in the U.S., which grew from a historic low in 1970 to a 90-year high in 2007: in 2007, the top 10% of wage-earners accounted for nearly half (49.7%) of total earnings in the U.S.; the top 0.01% of earners captured 6% of the nation’s income, nearly 4 times their share in 1968. By comparison, the bottom 90% of wage-earners took home more than 65% of all income in 1968, but in 2007 only 50%.

According to the Congressional Budget Office (CBO), the wealthiest 1% are making nearly four times what they were in 1979, in terms of real income; and even the wealthiest 20% are making nearly double what they were thirty years ago.  By contrast, middle class people are bringing home paychecks that are on average worth only 25% more than in 1979, and low-income families have only seen their income grow by 16%.  While it is possible that the size of the income gap may have decreased in 2008-09 because top earners derive a significant portion their incomes from investments, preliminary data indicates that disparity has not wavered significantly:  many of those who have managed to find work in the last two years have had to take a lower-paying job and/or part-time work.  Even so, moderations in wealth disparity due to a recession have proved temporary in the past, as was seen by the income gap’s quick growth to record levels following the dot-com bust.

Indexing the Minimum Wage

Washington State minimum wage workers got a raise in 2009 to $8.55 per hour -- now the highest state minimum wage in the country.   Like nine other states, Washington automatically increases its minimum wage each year at the rate of inflation to make sure families don't face a de facto pay cut as rising costs eat into family budgets.  Because the federal minimum wage is not indexed to inflation in this way, we have seen a decline in its value from $10.00 in inflation-adjusted dollars down to just $7.25 per hour in 2010.

While minimum wage workers in a couple of states, notably Connecticut and New Mexico, had raises in 2009 based on recent legislative action, that still means minimum wage workers in those states may see these gains eaten up by inflation if legislative attention drifts away from the issue for a couple of years, as has too often been the pattern at the federal level and in states without indexing.

Consider the story of the 2007 federal minimum wage increase: When Congress raised the minimum wage in 2007, it was the first time in ten years low-wage workers got a boost in pay.  Over that decade, the real value of the minimum wage had sunk by over 25%.  However, the real value of the 1997 minimum wage rate ($5.15 per hour) was already 30% less than in 1968; by 2007, then, $5.15 per hour was worth essentially half (54%) what minimum-wage workers were making forty years earlier.  Even with the increase to $7.25 in 2009, workers at the bottom of the pay scale still earned more than 25% less than in 1968 -- a margin that will continue to grow each year that the federal rate remains stagnant.

Policy Options for Restoring and Indexing the Minimum Wage

A total of ten states have adopted laws that index their minimum wage:  Arizona, Colorado, Florida, Missouri, Montana, Nevada, Ohio, Oregon, Vermont and Washington.  Washington’s law is a good example of how states can use a simple piece of legislation to both raise the real value of the minimum wage and then use indexing to maintain that value.  Until 1999, the state’s minimum wage was actually lower than the federal rate, at $4.90 per hour.  Over a 24-month period, the new law raised the base wage rate by nearly 33%, to $6.50.  From that point, starting in 2002, the rate was indexed to inflation and has automatically increased each year.  There are a number of possible methods for indexing states may want to consider.

Consumer Price Index:  While all existing indexed minimum wage laws use the federal Bureau of Labor Statistics’ Consumer Price Index (CPI), there are different measures within the CPI that states use.  For instance, Washington uses the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which measures changes in the cost of living for primarily hourly-wage workers and excludes data for professionals, the self-employed, and the unemployed; the CPI-W has been used in wage negotiations for nearly 100 years.  Oregon’s law uses the CPI for all urban consumers (CPI-U), developed in 1978 to measure the rising cost of living for all households in towns and cities with a population of at least 2,500.

Living Wage Measures:  So-called “living wage” rates, which have been adopted as a contracting standard by over 100 municipalities throughout the country, are set according to the actual cost of living.  Living wage rates are typically established based on a calculation of the cost of all basic necessities for a family of four, assuming both parents work full-time.  Pennsylvania State University has developed a calculator for estimating the living wage on a county-by-county basis throughout the country, which could be used to set locally different minimum wage rates.

Locally variable minimum wage rates would be somewhat more complex to enforce and for larger employers to comply with, but would be more sensitive to local economic conditions and more closely match workers’ income to small employers’ actual costs of doing business.  If set uniformly on a federal or state-wide level, a living wage-based standard would be inherently limited in its ability to account for significant differences among local areas, but no more so than any means of setting a uniform minimum wage rate.

Wage Parity Indexing: Another way to permanently set more realistic minimum wage rates, as some advocates have argued, is to fix the minimum wage at something like half the average wage in the economy.  Measured as a percentage of the average wage, the federal minimum wage peaked in 1952 at 55% of the average wage and has now dropped well below 35% (graph courtesy of the Economic Policy Institute).  Income disparity was also at a low in 1952, nearly equivalent to the all-time low in 1970.  

Fixing the wage in this way would prevent the kind of instability caused by extreme income disparity by making sure that low-wage workers are not left behind and that their spending capacity continues to be a healthy engine of job creation and local economic development.  It would also tie the value of the minimum wage more realistically to a measure of what employers can afford, without being technically arcane or relying overmuch on a historical value which could be portrayed as somewhat arbitrary in relation to the actual cost of living or economic performance.

Messaging on the Minimum Wage

The minimum wage is our most basic labor standard.  The principle of getting paid a decent wage for an honest day’s work resonates deeply with people’s sense of fairness.  Highlighting the injustice of working poverty and the degree to which working life in America has slipped from our core ideals makes for a powerful message which pro-business opponents are loath to be on the other side of.

Raising the minimum wage puts a stop to wealth redistribution: We have been redistributing wealth in this country for forty years -- from working families and the middle class to the wealthiest.  Through letting the minimum wage fall, we have managed to flush our nation’s wealth uphill, with barely a trickle back down.   

Workers’ wages drive job creation: Corporations do not reinvest their profits in job creation, but into speculative investments that only increase their executives’ and investors’ wealth.  Raising the minimum wage is fixing a dysfunctional system that has taken money away from hardworking people who earn and deserve their fair share and whose spending supports the economy, local businesses, and job creation.

Labor standards don’t cause job losses -- they stabilize the economy: The recession and all of the foreclosures and lost jobs were not caused by the basic labor standards that protect working people.  They were caused by the actions and excesses of corporations and investors themselves, and the absence of real government oversight.  If we hadn’t allowed wage values to fall, banks, credit card companies, and mortgage brokers could not have gotten Americans to mortgage their futures in order to maintain a respectable standard of living.

Workers’ earnings don’t reflect their productivity:  The productivity of workers throughout the U.S. has risen dramatically over the last four decades, although the real value of wages has fallen.  People are working harder and longer than ever, but with less and less to show for it.  No one who works full-time should be forced to live in poverty, but what’s the point of the minimum wage if it doesn’t guarantee that?

Raising the minimum wage doesn’t hurt the economy:  There is good evidence that states’ raising the minimum wage does not hurt business.  Washington and Oregon’s laws not only including indexing, they have the highest minimum wage rates in the country.  Despite the fact that this has been the case for years, these states’ unemployment rates are comparable to states with much lower minimum wages.  In fact, although its wage rate is 20% higher than the federal, Washington’s unemployment rate is lower than the national average.

Resources:
Economic Policy Institute:
- Securing the wage floor: Indexing would maintain the minimum wage's value and provide predictability to employers
- Minimum Wage Issue Guide
- Minimum wage trends: Understanding past and contemporary research
Progressive States Network - States Still Leading Feds on Minimum Wage
Let Justice Roll - Raising the Minimum Wage in Hard Times
Bureau of Labor Statistics - Minimum Wage Laws in the States - July 1, 2010
Brennan Center for Justice, New Jersey Policy Perspective, New Jersey Institute for Social Justice - The Adequacy of New Jersey's Minimum Wage