This post is part of a larger series.
A Higher Minimum Wage for All
The first fiscal reform required is regarding minimum wage. We need a higher minimum wage, and a minimum wage that applies to everybody, not just certain types of work.
The Fair Labor Standards Act establishes the federal minimum wage. As of July 24th, 2009, this law sets the minimum wage at $7.25 per hour for non-tipped, nonexempt workers, and $2.13 an hour for tipped workers who earn at least $30 a month in tips. If tips and wages come to below the minimum wage, the employer is responsible for paying employees the difference to meet the minimum wage. This law also establishes several exceptions, which are outlined on this page from the Department of Labor. Most significantly, employees under the age of 20 can be paid $4.25 an hour for their first 90 consecutive days. Students below the college level can be paid at 85% of the minimum wage, and those in vocational schools can be paid at 75% of the minimum wage. Finally, certain types of employees aren’t entitled to minimum wage, including seasonal workers, casual babysitters, commissioned sales employees, and many more. According to the same pages from the Department of Labor, any state or local laws that provide stronger protections or higher wages override the federal law.
Pennsylvania’s Minimum Wage Act of 1968 currently establishes a minimum wage of $7.15 for non-tipped workers and $2.83 for tipped workers. The law is similar to the federal version in all of its exemptions and requirements. Of particular note, Pennsylvania’s minimum wage law has a preemption clause, saying that no local government can make minimum wage laws. Therefore, the minimum wage anywhere in Pennsylvania is $7.25 for non-tipped workers and $2.83 for tipped workers (see this page for a good state-by-state comparison).
Wages in Philadelphia
In some of my earlier posts, I described the extent of low wages in Philadelphia and the high poverty rate of more than 26%. However, data on specific wages is very limited. The Bureau of Labor Statistics and the Census Bureau do collect a lot of information on minimum wage, but it only goes down to the state level. As a result, let’s take a look at the data we do have access to, and infer what we can from this. We can look at wage distribution data, which is important to supplement with minimum wage data regardless, since many workers may be earning just above the minimum wage.
Here is some data from the American Community Survey on wages from 2013 to 2017, adjusted to 2017 dollars:
Among Philadelphians who worked full-time and year-round, 5.58% of them earned less than $14,999 in a year, or roughly 26,000 people. If we assume that a full-time, year-round worker works 40 hours a week for 50 weeks in a year, that’s 2,000 hours in a year. At minimum wage, that’s $14,500 in gross wages per year. So, that 5.58% figure is likely to be quite close to the number of full-time, year-round workers earning minimum wage.
However, this doesn’t account for workers who only worked part-time or for less than the full year. This likely has an immense impact, since many low-wage positions are part-time and temporary. Take a look at the same data, but for all households:
Clearly individuals who work full-time year-round are higher earners. For example, 21.94% of all households earned less than $14,999 per year, compared to the 5.58% of fully-employed workers. Even if we assume that all of those households only had one earner, they’re still at or below the minimum wage. If we assume that a household has two earners who are fully employed, that would still be $29,000 a year at minimum wage. 34% of all households earned less than $24,999 in a year, so at least that many would be at or below minimum wage if they have two earners. 44.56% earned less than $34,999, which is still only $8.75 per hour for a household with two fully-employed earners.
Even though we don’t have data on the number of minimum wage earners in Philadelphia, this provides good insight into the general wage structure. Of course, the real numbers are probably not so neat and tidy. As I mentioned, many workers are working part-time or intermittently. Many people work multiple part-time jobs that pay at different rates, even from week to week. Many households have several earners, while others only have one earner. And to add even more confusion to the mix, Philadelphia has a lot of people working under the table or who are otherwise part of an informal economy, so we know nothing of their wages officially. Still, this data should provide a good picture of the general wage structure in Philadelphia—just be aware of its limitations.
Looking at data on the number of hours Philadelphians work helps illuminate this picture. Take a look below:
|50-52 weeks||0-49 weeks|
The majority of workers are working year-round and at least 35 hours a week. The 63.55% who are full-time year-round are the subset shown in more detail in the earlier chart, who typically earn more than the typical household. Clearly, then, a large part of the issue is that people cannot find full-time work, or they cannot find year-round work. And, those who are working part-time or for temporary time periods are typically earning far less. Nationally, those who work variable hours or less than 35 hours a week make up 61.7% of all earners who earn a wage at or below the federal minimum, yet they only account for 28% of all workers 16 and older (Bureau of Labor Statistics).
Combined, this tells us that national-level and even state-level minimum wage data hide terrible inequalities by only showing the aggregate. For instance, the Bureau of Labor Statistics reports that only 2.1% of the working population 16 or older earning an hourly wage earns at or below the federal minimum. In Pennsylvania, it is 2.8%. That sounds tiny, and yet, in Philadelphia we know that 22% of all households at the bare minimum earn at or below the minimum wage. This is likely upwards of one-third when we account for households with two or more earners. So, Pennsylvania’s 2.8% are highly concentrated in places like Philadelphia.
Keystone Research Center, a left-leaning think tank based in Pennsylvania, has carried out significant amounts of research on minimum wage, including a county-by-county analysis. Among their findings for Philadelphia, here are some key takeaways on the number of people to be impacted:
- Raising the minimum wage to $9 an hour would impact 94,702 workers;
- …to $12 an hour would impact 196,240 workers; and
- …to $15 an hour would impact 253,698 workers.
That is the state of wage distribution and the legal history of the minimum wage, but what about the next steps? What should the minimum wage be set to, and why? And if we should change it, how do we do this?
Here are the general viewpoints I have found, in order from most strongly opposing to most strongly supporting minimum wage:
- The minimum wage should not exist at all, since it’s an artificially set price floor that creates inefficiencies in the economy.
- The minimum wage should exist, but it should remain at its current level or be even lower so that we minimize potential impact on the economy.
- The minimum wage should exist, and it should be scaled to inflation from a particular point in history.
- The minimum wage should exist, and it should be set to a certain ratio to the local median wage. For example, it should be 50% of Philadelphia’s or the national median individual wage.
- The minimum wage should exist, and it should be set to the minimum cost of living for basic needs, assuming full-time, year-round work for one individual.
The first two views emphasize the overall health of the economy. Often, opponents of minimum wage or minimum wage increases will claim that the higher the wage floor is, the more unemployment is created. This is because, increasing low wage costs will increase costs for the employer, who will then have to make up for this by eliminating staff, refraining from hiring more staff, and raising prices. Additionally, this will contribute to inflation by increasing wages and increasing prices, which will ultimately decrease the purchasing power of increased wages.
Even within this viewpoint, there are major differences. Some reject the notion that people should have a right to earn enough to survive, instead saying that the free market should dictate all prices, including for labor. They maintain that, if those who aren’t earning enough want to earn more, they will need to find ways to increase the value of their labor, such as through attending more schooling. Others within this viewpoint do accept the notion that people working full-time should have a right to earn enough to survive, but they do not believe that this is the employer’s responsibility. Instead, they believe that government subsidies through tax credits or other initiatives should meet the gap between the value of labor and the cost of living. Others similarly accept the idea that people should be able to earn enough to survive, but point to the harm that could be caused by preventing people from working for less than the wage floor. For instance, some would lose out by not being able to work for, say, $3 an hour, and instead will be unemployed. Therefore, we would be actually harming people more.
These are roughly the first two views. The core thesis behind these views is that the market should dictate labor prices, regardless of the needs of individual workers.
Views three, four, and five do not agree with this. Instead, they maintain some form of the view that those who work full-time, year-round should be able to earn enough to at least pay for basic needs, even if the market would dictate a lower price for their labor. Further, they maintain that the responsibility is on the employer, and not the government or other parties. The rest of the disagreement seems to simply center around what exactly the wage threshold should be.
Let’s see how the various proposals would pan out in reality. Here is data on the minimum wage from its creation to the present, including its value scaled to inflation in today’s dollars, and the ratio of the minimum wage to the median hourly wage:
The minimum wage reached its purchasing power peak in 1968, and it is now about as low as it has been since the post-WWII era. The data on median hourly wage does not stretch further back than 1979, unfortunately, but we can see the trend that it was highest in 1979 and has been continually lowering. Today, it is at its lowest. Of course, this ratio could have been even higher in 1968, and far lower than today’s ratio before WWII.
Scaling minimum wage to inflation since its last increase in 2009 would put it at $8.51. But, why should we choose that date over any other? And, which date should we choose if we use this method? Should we select the point when minimum wage was highest, in 1968? Personally, I don’t see selecting any given date as having more reason over any other, but I do think showing how much the minimum wage has decreased in purchasing power is a helpful tool to show how significantly inflation has reduced the “real” minimum wage.
What about a certain percentage of the median income? But, then we have the same problem again. Which percentage do we choose, and why? Again, I don’t see selecting a certain percentage as having any more reason than another purely based on this. Incidentally, choosing 50% of the median wage, which is a typical recommendation, or choosing the highest historical rate both come out to about $12 dollars an hour, so maybe this is a moot debate for now.
The underlying incentive for both of these methods is to increase the minimum wage to a level that provides enough for an individual to purchase basic needs. Yet, these are indirect and imprecise methods of setting the minimum wage. Why not cut directly to the underlying principle? In this case, we would determine what the minimum hourly wage required would be to support one adult.
Fortunately, the Bureau of Labor Statistics already collects comprehensive data on this topic. As of 2017, and at the national level, the average household earned $63,606 and spent $60,060 in one year. However, we are interested in the bare minimum needed to survive. Therefore, I recommend using the expenditures reported for the lowest income decile, or $24,801, since we know for sure that these households are only spending what they need to survive, even in excess of their income. At an hourly rate working 50 weeks for 40 hours a week, that is $12.40 an hour. That is not a great difference from the other methods, so again, perhaps settling these differences is a moot point.
Of course, this is just one example to determine the minimum amount needed to survive. A professor at MIT has created a living wage database by region, for instance, and it utilizes several data sources. And of course, the cost of living varies greatly by region. In Philadelphia, for one adult, it is $12.64 an hour—again, not wildly different.
Which option should we pick?
I argue that there should be a minimum wage, and that it should be set to the living wage. It should be scaled to inflation automatically each year, and there should not be nearly as many exceptions as there are currently. Here’s why.
1) The free market ideologies outlined earlier that oppose the minimum wage presuppose a perfectly free market in which employers and employees have equal power.
This is clearly not the case. Employers, by far, are more powerful than employees. Employees cannot start or join a union in the overwhelming majority of industries. Most employees simply do not have the bargaining power to negotiate, and simultaneously, they cannot afford to say no to low offers because they are pressured by the cost of living and a low wage. This is exactly the reason minimum wage was first enacted—in recognition that many people lack the power to negotiate fairly. Therefore, it is the government’s responsibility to protect workers by giving them the power of minimum wage.
2) Concerns of negative economic impact, especially regarding unemployment and inflation, are over exaggerated if minimum wage remains in reasonable limits.
Concerns about reducing employment rates from raising the minimum wage are valid. For instance, if we made the minimum wage $1,000 an hour tomorrow, of course that would have terrible impacts on employment and the economy. However, relatively small, incremental increases to the minimum wage likely do not have very large impacts on employment rates or inflation. Again, the market is not operating with perfect freedom in supply and demand, or with perfect rationality. Employment is not a binary supply-demand chart. It is influenced by a host of other factors, such as the productivity of labor, the cost of hiring and firing, the cost of training, and numerous social or cultural factors that are difficult to quantify.
The Keystone Research Center notes that all of Pennsylvania’s neighboring states have higher minimum wages that are already set to increase automatically. They report that all of those states have had stronger job growth than Pennsylvania, and that incremental changes to the minimum wage will have minimal effect on employment. Likewise, a paper from the National Bureau of Economic Research found that raising the minimum wage has negligible impacts on creating unemployment, but it does have a significant impact on creating future job opportunities in expanding industries.
Further, minimum wage remains far below the median productivity of workers. Worrying whether the minimum wage is too high should be a debate when it comes to minimum wage crossing this threshold, but we are nowhere near this situation. The charts below show worker productivity and median wages. The first shows productivity as scaled to 1947, and it shows that productivity has more or less increased continually, reaching more than 440% of what it was in 1947.
Productivity is a fairly abstract concept and can be measured in several ways. The second chart comes from the Economic Policy Institute, and it shows a similar story for production workers. Productivity has continually increased, but the median wage has not kept pace. Since we found that the minimum wage has only ever been under 50% of the median wage, and is now 32% of the median wage, we know that minimum wage is far, far below worker productivity on the whole.
3) People truly need the minimum wage in order to survive.
There is a rather common stereotype that the minimum wage is only meant for entry level positions, for teenagers who just want to earn some extra cash, and generally for temporary or part-time positions that are not essential. This is false. The overwhelming majority of minimum wage earners and those close to minimum wage are adults supporting a family. When we picture the typical minimum wage earner, we should not picture a middle class teenager saving up for a new gaming system on the weekends. We should picture a single person over the age of 20 with a high school diploma, working at least 35 hours a week, struggling to make ends meet. Providing a livable wage is not a luxury, it is a necessity.
The Keystone Research Center study I mentioned earlier provides excellent insight into this debate. Here are some key statistics regarding Philadelphia:
- Of those who would benefit from minimum wage increases, 96.7% are adults and 71.9% work full-time.
- Those who would benefit from minimum wage increases earn an average of 60.9% of their family’s income.
- Teens earn an average of 29% of their family’s income. Teens who would be affected by a minimum wage increase earn 28.8% of their family’s income.
Taken together, this means that the current state of minimum wage amounts to perpetual exploitation of society’s most vulnerable. This is particularly the case when we consider the various exemptions. For instance, seasonal workers and household assistants are not eligible for the minimum wage. Why? Is this not a recipe for abuse and exploitation of those already at the lowest income rungs? Teenagers or students are allowed to be paid at $4.25 an hour, or rates of 75% or 85% of the minimum wage. Why? Many teenagers are not working for fun, as the stereotype suggests. They are perhaps the only earner in their family, or perhaps an integral source of income for a family. Tipped workers are allowed to be paid a meager $2.13 an hour nationally, and $2.83 an hour in Pennsylvania. Why? Why are we relying on the good will of tipping, and further, on the good will of the employer to make up tips when business is bad? This is a recipe for wage theft. The Keystone Research Center found that one in ten minimum wage workers experiencing wage theft.
It is almost as if our current minimum wage law is not written with the needs of workers in mind. It is written to allow for multiple forms of exploitation and abuse, creating perpetual poverty wages for many Americans. In Philadelphia and Pennsylvania, this is especially apparent.
How to change the minimum wage
We need to change our minimum wage laws to protect workers and improve quality of life. This can only happen in the following ways:
- The federal government passes updates to minimum wage legislation;
- The State of Pennsylvania passes updates to state minimum wage legislation; or
- The State of Pennsylvania updates minimum wage legislation to allow localities to set a minimum wage, and then Philadelphia passes its own minimum wage legislation.
Unfortunately, this is incredibly difficult. The federal government has not been eager to raise the minimum wage. This will not change until Democrats control the legislature and presidency, and even then it will be a contentious debate. Philadelphians would have to wait for changing tides in national political opinion, which is what people have been doing for decades already.
The state level is even worse. As a Billy Penn article notes, there have been at least six recent attempts in the state legislature to increase the minimum wage. None of them have been successful, since most Republicans in the legislature oppose changing the minimum wage law, and Republicans control the legislature by a ratio of two to one. Philadelphia has 33 representatives and senators out of 253, and the vast majority support minimum wage increases or updates. Therefore, Republicans from other regions in the state would have to change their mind, or Democrats need to win rural Pennsylvania over.
And, as I found in another post, even though Democrats in the state outnumber Republicans by one million, gerrymandering prevents their proportional representation. Therefore, Pennsylvania’s gerrymandering issue must first be resolved. Pennsylvanians are in support of minimum wage increases. One poll found that 62% of all Pennsylvanians support raising the minimum wage to $12 an hour and eliminating the tipped minimum wage. The only political group that opposed this proposal in a majority were “Conservative Republicans,” with 33% support. When respondents were asked the same question, but for $15 an hour, 56% said they would support it. “Liberal/Moderate Republicans” and “Conservative Republicans” opposed it, with 35% and 22% support respectively. Another poll found that 61% of registered voters support Governor Wolf’s proposal to raise the minimum wage to $12 an hour by July of 2019 and $15 an hour by 2025, and to eliminate the tipped minimum wage. 83% of Democrats and 33% of Republicans supported the proposal.
Finally, there is the city-level government. Again, unfortunately the state has insisted on tying the hands of local government when it comes to minimum wage. Therefore, there is simply no direct way for city council to legislate minimum wage increases for the general population. The best avenue for a minimum wage change remains through the state legislature, and therefore through reforming gerrymandering.
But Philadelphians cannot wait any longer. We need policies that we can enact while we fight the long battle of gerrymandering reform and national minimum wage increases. There needs to be more immediate relief. Philadelphia’s city council can get creative by passing legislation that effectively raises the minimum wage, but without actually raising the minimum wage directly. One way to do this is to enact tax penalties for employers who pay below a certain threshold, and then use this revenue to supplement the wages of workers below that threshold. Alternatively, there could be incentives to pay workers above a certain threshold. There are many potential incentives and disincentives to offer, and it only comes down to the creativity of policymakers.
However, there could be negative consequences. For one, Philadelphia already has many workers who are under the table, or unofficially employed. Creating a disincentive for paying employees below a certain threshold could increase the number of people who are under the table, which would make any minimum wage or worker protections pointless. If we provide an incentive, on the other hand, this would amount to the city government subsidizing wages, unless policymakers can find a suitable non-financial incentive for raising wages. Once we are discussing subsidizing wages, then there are likely far better ways to do this than through incentivizing a wage floor. Why not simply provide all households below a certain wage threshold a living wage stipend, then? Then we are in the territory of universal basic income.
Still, this doesn’t mean we should give up on proposals like these. If policymakers are careful, they can likely craft legislation that would at least provide some benefit, while having minimal negative consequences. Any proposal will have to accept the reality that, while we are working to indirectly create a minimum wage, there will only be so much that can be achieved. This should be viewed as a temporary relief, rather than the long-term solution of state and federal legislative changes.
In sum, we need to push for state and federal changes to minimum wage law. The minimum wage should be set to about $12 an hour immediately, be tied to inflation and the minimum cost of living automatically, and it should have no exempt categories.
Most importantly and probably most feasibly, we should prioritize removing the preemption clause in the state’s law so that places like Philadelphia can set their own minimum wage, and then push for a local minimum wage law. This requires reforming gerrymandering in order to better represent the views of Pennsylvanians, who are in support of minimum wage increases. The only way to reform gerrymandering is through passing legislation and amending the State Constitution, and the only way to do that is through a massive, grassroots campaign to put pressure on elected officials and to elect representatives who support this reform.
In the meantime, we can come up with creative proposals to effectively create a minimum wage in Philadelphia, without breaking state law.