Understanding the Need for Higher Wage Standards Testimony before - PowerPoint PPT Presentation

Understanding the Need for Higher Wage Standards Testimony before the Vermont Senate Economic Development, Housing, and General Affairs Committee January 17, 2018 David Cooper Senior Economic Analyst

Outline 1. The historical context 2. How to evaluate the level of the minimum wage: standard-of-living measures & relative measures 3. Why minimum wage policy is particularly important in Vermont 4. What the research literature says about the impact of higher minimum wages 5. Conclusions 2

Stagnant pay is the primary U.S. economic challenge 3

Since 1979, wages have been flat or falling for low & middle- wage workers Cumulative change in real hourly wages of all workers, by wage percentile, 1979-2016 60.0% 2016 49.6% 50.0% 40.0% Very high wage (95th percentile) 30.0% 20.0% Middle wage (50th 9.2% percentile) 10.0% 0.9% Low wage (10th percentile) 0.0% 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -10.0% -20.0% Source: EPI analysis of Current Population Survey Outgoing Rotation Group microdata, 1979-2015 4

Progress against poverty stalled Poverty rate, actual and simulated,* 1959-2015 25.0% Simulated poverty rate* Actual poverty rate 20.0% 2015 13.5% 15.0% 10.0% 5.0% 1985 0.1% 0.0% 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 *Simulated poverty rate is based on a model of the statistical relationship between growth in per capita GDP and poverty that prevailed between 1959 and 1973.

Middle class living standards are far lower than they could have been

Recent tax changes will only exacerbate growing inequality 7

Why the breakdown between productivity and wages? • “Globalization” = exposure to global manufacturing competition without protections for domestic workers • Decline of unionization/collective bargaining • Too many periods of high unemployment, in part due to Fed prioritizing low inflation over full employment • Rise of financial sector & explosion of executive compensation • Labor policy actions/inaction that reduced worker bargaining power (e.g., erosion of the minimum wage) 8

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VT wage growth better than US; still flat at bottom since 2000 Cumulative change in real hourly wages in VT by percentile, 1979-2016 50.0% 2016 41.3% 40.0% 90th percentile 30.0% 26.8% 20.0% 50th percentile (Median) 10.8% 10.0% 10th percentile 0.0% -10.0% -20.0% Source: EPI analysis of Current Population Survey Outgoing Rotation Group microdata, 1979-2016

ME VT 10th percentile 20th percentile 10th percentile 20th percentile 50th percentile (Median) 90th percentile 50th percentile (Median) 90th percentile 50.0% 50.0% 40.0% 40.0% 30.0% 30.0% 20.0% 20.0% 10.0% 10.0% 0.0% 0.0% 1979 1984 1989 1994 1999 2004 2009 2014 1979 1984 1989 1994 1999 2004 2009 2014 -10.0% -10.0% -20.0% -20.0% MA NH 10th percentile 20th percentile 10th percentile 20th percentile 50th percentile (Median) 90th percentile 50th percentile (Median) 90th percentile 80.0% 60.0% 70.0% 50.0% 60.0% 40.0% 50.0% 30.0% 40.0% 30.0% 20.0% 20.0% 10.0% 10.0% 0.0% 0.0% 1979 1984 1989 1994 1999 2004 2009 2014 -10.0% 1979 1984 1989 1994 1999 2004 2009 2014 -10.0% -20.0% -20.0%

A modest, but adequate standard of living in VT requires more than $15/hour today Source: www.epi.org/resources/budget/

Standard-of-living measures of the minimum wage Nominal and real value (2017$) of the federal and Vermont minimum wages, 1948-2026 $16.00 $14.00 $12.00 2018 1968 $10.27 $9.90 $10.00 $8.00 $7.25 $6.00 $4.00 $2.00 $0.00 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 Real minimum VT Minimum (real 2017$) fed real projected VT Minimum projected (real 2017$) Nominal federal minimum VT Minimum (nominal) VT projected current law Projected nominal fed 13

Standard-of-living measures of the minimum wage Nominal and real (2017$) value of the Vermont minimum wage, 1968-2017, and projected under increases to $15 by 2022, 2024, and 2027 $16.00 2022 2024 $13.36 $14.00 $12.74 $12.00 2027 1976 $11.87 $9.90 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 VT Minimum (real 2017$) VT real projected 2022 VT real projected 2024 $15 in 2027 (real 2017$) 14

At $15 in 2022-2024, the Vermont minimum wage would no longer be a poverty wage Annual wage income for a full-time VT minimum-wage worker, compared with various poverty thresholds, 1964-2017 and 2018-2027 (projected) $30,000 2022 2024 $27,785 $26,509 Four-person family $24,600 $25,000 2027 2018 $24,689 Three-person family $21,367 $20,420 $20,000 Two-person family $16,240 $15,000 Annual full-time minimum wage income in VT (2017$) $10,000 $5,000 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 Note: Inflation measured using the CPI-U-RS. Inflation projections calculated using CBO (2017). Note: Inflation measured using the CPI-U-RS. Inflation projections calculated using CBO (2017). 15

Minimum wage today is much farther away from “middle class” wages Federal minimum wage as a percentage of the median wage and average wage of production workers 60.0% 1968 55.0% 53.0% 50.0% 52.1% Average hourly earnings 45.0% of nonsupervisory production workers 40.0% 2017 34.3% 35.0% Median wage of full- 32.9% time workers 30.0% 25.0% 20.0% 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: EPI analysis of Current Population Survey Annual Social and Economic Supplement microdata, Bureau of Labor Statistics average hourly earnings of production nonsupervisory workers data 16

$15 in 2022/24 would bring low-wage jobs closer to middle wage jobs Vermont minimum wage as a percentage of the VT median wage, 1979-2016 and projected 2017-2027 (assuming 0.5% real median wage growth) 70.0% 65.0% 2022 59.9% 2024 60.0% 56.6% 1979 53.6% 55.0% 50.0% 2017 2027 46.4% 51.3% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Source: EPI analysis of Current Population Survey Annual Social and Economic Supplement microdata 17

Minimum wage policy is particularly important in Vermont 18

Affected workers in VT are more likely to have bachelors degrees than elsewhere in New England Source: Chaddha , Anmol. 2016. “A $15 Minimum Wage in New England: Who would be affected?” Federal Reserve Bank of Boston. https://www.bostonfed.org/-/media/Documents/Community%20Development%20Issue%20Briefs/cdbrief42016.pdf 19

Affected workers in in VT are more lik likely to work k full ll tim ime than els lsewhere in in New Engla land Source: Chaddha , Anmol. 2016. “A $15 Minimum Wage in New England: Who would be affected?” Federal Reserve Bank of Boston. https://www.bostonfed.org/-/media/Documents/Community%20Development%20Issue%20Briefs/cdbrief42016.pdf 20

Affected workers in in VT ea earn a lar larger sh share of f th their famil ily in income th than els lsewhere in in New England Source: Chaddha , Anmol. 2016. “A $15 Minimum Wage in New England: Who would be affected?” Federal Reserve Bank of Boston. https://www.bostonfed.org/-/media/Documents/Community%20Development%20Issue%20Briefs/cdbrief42016.pdf 21

Research on the minimum wage and employment • Early research 1970s & 1980s – it was thought that higher national minimum wage reduced employment • 1990s – Many U.S. states set minimum wages above national minimum wage • Card & Kreuger (1995) Myth and Measurement – examined minimum wage increase along New Jersey border • Employment grew more in NJ border counties than in PA after minimum wage increase 22

The best research: cross-border comparisons 23

Meta-studies: Moderate increases in the minimum wage have “little to no effect on employment” 24

Why no negative effect on jobs? • Schmitt, John (2013) “Why Does the Minimum Wage Have No Discernible Effect on Employment?” Channels of adjustment: 1. Reduction in turnover costs (+10% MW → -2.2% in turnover) 2. Improved productivity & efficiency 3. Wage compression 4. Small price increases (+10% MW → 0.3% -1.5%) 5. Increased consumer demand generated by increase to worker spending power 25