Minimum Wage and Family Prosperity
The Case for a Polk County Minimum Wage
POLICY BRIEF
By Peter Fisher

May 16, 2016
This IPP Policy Brief10-page PDF

Inaction by Congress and state legislatures has led many cities and counties to adopt a local minimum wage. We show that a $12 or $15 county minimum wage, phased in by 2019 or 2021, would raise the incomes of at least 60,000 to 88,000 workers in Polk County; the majority would be full-time workers and over a third would be parents. Average incomes of affected workers would rise by $3,350 to $5,000, which would increase total income in the local economy by $230 million to $444 million. This in turn would increase spending in local retail and service establishments, boosting economic activity and employment.


The average worker in America has seen little improvement in wages over the past 40 years. While worker productivity has risen steadily and incomes at the top have soared, wages have barely kept pace with inflation.

Part of the reason for wage stagnation is the failure of Congress and many state legislatures to raise the minimum wage apace with the rising cost of living and rising productivity. The U.S. minimum was set at $7.25 per hour in July 2009 and has not been raised in the six years since, nor is the current congress likely to enact an increase in the foreseeable future. Meanwhile, labor productivity continues to increase and the cost of living has risen 11 percent, reducing the real value of the wage.

Federal inaction has prompted the majority of states to enact their own minimum wage. Twenty-nine states now have a minimum higher than the federal. That includes five of the six states surrounding Iowa, Wisconsin being the only holdout. California and New York just enacted laws phasing in a wage of $15 over the next several years.

Localities have also responded to legislative inaction by establishing a local minimum wage. At least 33 cities and counties across the country now have a higher minimum wage than the federal, and the list will continue to grow. Campaigns to raise the minimum wage were planned or underway in at least 13 cities as of December 2015.

One of the latest localities to add a local minimum wage — and the only one in Iowa — is Johnson County, where the second step of a three-step increase to $10.10 took effect May 1. The Johnson County wage is now $9.15 and will rise to $10.10 on January 1. Supervisors passed the measure unanimously in 2015 with vocal public support and legal advice, despite speculation of a court challenge that has not transpired. While some small towns in the county have chosen to pull back to the state minimum wage of $7.25, most communities including the largest ones have gone along, raising wages for the vast majority who could be affected.

In this report, we evaluate the case for establishing a minimum wage in Polk County and increasing the wage in steps over the next few years. We consider three scenarios: raising the wage to $12 by 2021, raising it to $12 by 2019, and raising it to $15 by 2021.[1] We conclude:

• While productivity has nearly doubled since 1968, the real value of the minimum wage has fallen 25 percent. If the minimum wage were increased to match the average growth in productivity since 1968, it would be over $18 per hour today.
• Most families in Polk County need to earn more than $15 per hour just to pay for basic needs.
• Most of the cities and counties that have adopted a local minimum wage have set the wage above $10 per hour, many at $15, and most have indexed the wage to inflation.
• About 63,000 workers in Polk County would benefit from an increase in the minimum wage to $12 per hour by 2019; over 88,000 would benefit from an increase to $15 by 2022.
• Of those who would benefit from the higher wage in Polk County, 56 percent are women, 63 to 67 percent work full time, and 37 to 40 percent are age 40 or older, while only 13 percent or less are under 20. About 37 percent are parents.
• Beneficiaries of the minimum wage increase consist of workers who on average provide about half of all family income. Over 1 in 4 are sole providers.
• Over half the workers who are now living below the poverty line would see a wage increase. A reduction in poverty has long term benefits not just for low-wage workers but for their children and their future life chances, and the broader community.
• A higher minimum wage would put money in the pockets of low-wage workers and boost spending in the local economy, which in turn would lead to additional local retail and service jobs. A boost to $12 by 2019 would increase annual earnings by an average of $3,650 per affected worker, resulting in $230 million in additional income in the local economy. The $15 scenario would boost incomes on average by $5,000, and produce a total of over $444 million in additional income.
• Studies of moderate increases in the minimum wage have found no discernible effect on jobs. With an increase in the wage, the resulting boost in local spending, reduced employee turnover and hiring costs, and the ability of employers to make other adjustments will likely minimize effects on employment.

An Increase in the Minimum Wage Is Overdue

Over the past 40 years, the stagnation of real wages (wages adjusted for the rising cost of living) has left many workers little better off than they were in the early 1970s. Real wages have not grown at all over the past six years, and are just 6 percent higher than they were in 1972. Yet over this period, the productivity of American workers increased dramatically. In the chart below we show the growth in productivity and the change in the minimum wage from 1968 (the peak value of the real minimum wage) to 2015. This is an index graph: each series starts at a value of 100 in 1968. We can see that productivity — the value of output per worker — nearly doubled over this period. The minimum wage, on the other hand, declined to only 76 percent of its 1968 value. Minimum wage growth has been allowed to fall dramatically below the growth in worker productivity.

Figure 1. Growth in Productivity, the Average Wage and the Minimum Wage: 1968-2014

Fig 1 productivity The “average wage” is the average wage of production, non-supervisory workers. The average wage and the minimum wage are converted to 2015 dollars using the CPI-U-RS. Source: David Cooper, “Raising the Minimum Wage to $12 by 2020 Would Lift Wages for 35 Million American Workers.” Economic Policy Institute, July 14, 2015; and additional data provided by him.

The graph plots the average productivity of the American worker. While the minimum wage affects only low-wage workers, it is clear that the productivity of low-wage workers increased as well. Consider how a key determinant of productivity — the level of education of the worker — has changed over this period. In 1968, 48 percent of low-wage workers had at least a high school diploma or the equivalent, but by 2012 this share had risen to 79 percent. In 1968, only 17 percent of low-wage workers had any college; by 2012, 46 percent had at least some college experience.[2] So there has undoubtedly been a substantial increase in the productivity of low-wage workers, defined as those earning below the 20th percentile wage. Yet the wages of these workers have been allowed to stagnate or shrink, in part because the minimum wage has failed to rise even with inflation, no less with productivity.

The key point is this: In an economy that distributed the gains from increasing economic efficiency and prosperity equitably, the wages of low-wage workers would rise with their increasing productivity. This means that real average wages, and the real minimum wage, would rise. A goal of restoring the minimum wage just to its 1968 purchasing power is setting the bar far too low. If the minimum wage were increased to match the average growth in productivity since 1968, it would be almost $19 per hour today.[3]

Figure 1 shows how real wage growth became disconnected from productivity growth in the early 1970s. So if production and nonsupervisory workers were producing more and more per hour, but getting paid about the same, where was all that value going that they were producing? The answer is quite clear: It was going to management, to soaring CEO salaries, to incomes in the financial sector. This is the now familiar story of rising income inequality. Raising the minimum wage is an important strategy to counter this troubling trend by raising the wages of lower-wage workers (and raising the average in the process) to reflect the greater productivity of those workers.

A Family Supporting Wage Is Much Higher than $7.25

The case for an increase in the minimum wage becomes compelling when the existing $7.25 minimum is compared to the actual cost of living. In a recently released report, the Iowa Policy Project constructed basic family needs budgets for many family types for every county in Iowa.[4] A family in Polk County with two wage earners and one or two children needs $50,000 to $60,000 a year just to pay for the basic costs of rent, utilities, food, transportation, child care and health care. From these “basic needs budgets” we calculate the hourly wage needed — when working full time, year round — to leave the family with after-tax income equal to the cost of basic needs.

Figure 2. Self-Sufficiency Wages in Polk County Exceed Minimum Wage by Large Margin
Hourly wage needed by each full-time worker to meet basic family needs without public assistance in 2015

Fig 2 vs basic needs

Source: The Cost of Living in Iowa, 2016 Edition, Part 1: Basic Family Budgets

A married couple with one wage earner, and either one or two children, requires a job paying from $22.80 to $25.50 per hour. Most married couple families with children in Iowa have two wage earners, however. While working hours are doubled, expenses increase substantially because of the high cost of child care. For such families, each parent needs to earn between $14.50 and $18.00 an hour. For a single parent, the budget math becomes more daunting, as child care costs must be paid out of a single paycheck. Now an hourly wage of $22 to $26.50 is needed.

Even a single person with no children needs much more than the current $7.25 hourly wage to meet basic needs. An increase to over $13 would be required for such person to just get by.

These budgets include only basic expenses; there is nothing allowed for meals outside the home, trips or vacations, entertainment, or saving for college or retirement. Child care costs are for a licensed home; care in a licensed child care center would be higher. Health care includes the cost of a basic silver plan purchased on Iowa’s insurance exchange for 2016, plus average out-of-pocket expenses. Food costs are based on the U.S. Department of Agriculture’s thrifty food plan. Thus families living on these basic needs budgets would be just getting by.

It is likely that the cost of living will continue to rise, and the wage required for a worker to be self-supporting at the basic needs level will rise with it. This reality is why so many state and local minimum wage increases have included a cost of living adjustment.

The Current State of Local Minimum Wage Ordinances and Campaigns

The first city minimum wage laws were enacted in 2003 in Santa Fe and San Francisco. But starting in 2012 and continuing into 2015, 25 more cities and 6 counties adopted such laws, including Johnson County, Iowa. Of the 31 ordinances enacted in the past three years, all but three have set a minimum above $10.00.[5] It is noteworthy that at least 24 of the 33 cities or counties have indexed the minimum wage to inflation.

Figure 3. City and County Minimum Wage Laws in Effect as of April 2016
By year of enactment; wage shown is the minimum currently in effect or to be in effect as of year indicated

Fig3 city wage laws*Not indexed to inflation. Source: National Employment Law Proiect, City Minimum Wage Laws: Recent Trends and Economic Evidence; December 2015
.

Who Would Benefit from a Polk County Minimum Wage?

Over 60,000 workers, representing about 25 percent of the Polk County work force, would benefit from an increase in the Polk County minimum wage to $12. An increase to $15 would expand the ranks of those benefiting to over 88,000, or about 34 percent of all workers in the county.[6] These are conservative estimates, in part because they omit state and federal employees. While it is unclear whether state or federal agencies would be bound by a county wage ordinance, wages for public sector workers would no doubt have to be raised by some amount in order to be competitive in the labor market. These estimates do not include such effects. The estimates are also conservative in that they do not include all workers who commute to Polk County from other counties.[7]

These estimates include those benefiting directly — because they are currently paid less than the new minimum wage — and those benefiting indirectly. The latter includes those currently earning a little more than $12, or $15, but whose wages would be increased by the employer in order to maintain wage parity within the business, or in order to be competitive in the labor market. Of the total estimated beneficiaries, 22 to 27 percent benefit indirectly.

Over 55 percent of those benefiting from a Polk County minimum wage are women, and about 22 percent are persons of color. Only 13 percent or less are under age 20, while 37 to 40 percent are over the age of 40. More than 36 percent of the beneficiaries are parents. Moreover, 28 percent of all children live in a household with a parent affected by an increase to $12 by 2019, and almost 38 percent of children live in a household with a parent affected by the $15 alternative.

Figure 4. Characteristics of Those Benefiting from a $12 Minimum Wage by 2019 in Polk County: Gender, Age, Race, Hours Worked and Industry

Fig4 linn demographics Source: Analysis of American Community Survey Data for 2014 by the Economic Policy Institute

Only 1 in 10 of the beneficiaries work part time (fewer than 20 hours per week); 63 to 67 percent work full time (35 hours per week or more). Almost two-fifths work in retail or in the arts, entertainment and hospitality sector.

A Higher Minimum Wage Would Reduce Poverty

Ten to 15 percent of the potential beneficiaries are below the poverty line, and over 55 percent of all those in poverty would benefit from an increase in the minimum wage. While we cannot determine how many in Polk county would be lifted above the poverty line, it is clear is that the depth of poverty — the gap between income and the poverty line — would be reduced for the majority of those now working but living below poverty.

Reductions in poverty have long-term benefits not only for the poor working adults but for the children of poor families and for the community. The consequences of growing up in poverty have been well-documented.[8] Children growing up below the poverty line have poorer health outcomes, lower educational attainment and are more likely to become involved with the criminal justice system compared to children growing up in higher-income families. These consequences often carry into adulthood. Relative to an adult who grew up in a middle- or upper-income family, an adult who grew up in poverty is more likely to complete less schooling, earn a lower wage, experience physical and mental issues, face criminal charges and become a teen parent. Research has shown that eliminating poverty for a child under the age of 6 will increase his or her earnings as an adult by about 29 percent per year.[9] Higher earnings, in turn, translate into less reliance on public assistance programs.[10]

A Higher Minimum Wage Would Boost the Local Economy

Raising the minimum wage puts more disposable income in the pockets of the work force in Polk County. A $12 minimum wage phased in by 2019 would raise the incomes of over 63,000 workers by an average of $3,650 per year (in 2015 dollars). This translates into a total increase in earnings of over $230 million. Raising the wage further to $15 by 2021 would increase average incomes of at least 88,000 workers by about $5,000 per year, producing a $444 million boost to total earnings. Much of that income would be returned to the local economy as workers spend more at grocery stores, car dealerships, clothing stores, restaurants, theaters — in fact, throughout the local retail and service sectors. Increased sales in turn would create a need for more workers.

A study of the effects of a $15 minimum wage in Seattle found that for every $1.00 in additional wages, $1.20 in additional economic activity would be produced.[11] This is due to the fact that low-wage workers spend a relatively large percentage of their incomes in the local economy, and because money spent locally gets re-spent several times over, as higher sales translate into expanded employment and earnings, which generates higher spending locally.

A Higher Minimum Wage Would Likely Have Little Effect on Employment

City minimum wage laws have been in effect long enough that we can learn from their experience. There have been a number of rigorous studies of the effects of higher local minimum wages on employment, and the results have been consistent: There is no discernible effect on employment levels. Four of these studies, conducted by researchers at the University of California – Berkeley, the University of New Mexico, and the Center for Economic and Policy Research, examined the experience of particular cities: San Francisco and Santa Fe.[12]

Two other studies are especially significant because they employed a sophisticated methodology to examine large samples of contiguous counties where the minimum wage differed at some point in time. The counties were paired, with the two counties in each pair separated by a state line. For at least one period one of the two states had a higher minimum wage than the other. This is a crucial test of job effects because adjoining counties are similar in many important respects: They are essentially in the same market area, and businesses tap the same pool of workers and customers. Thus while not an examination of a city or county minimum wage, these studies provide a crucial test of what happens when the wage in one county is higher than in a neighboring county — the exact situation that Polk County would face if the county had a local minimum wage.

The first of these studies looked at 288 county pairs between 1990 and 2006 and focused on the major low-wage sectors (accommodations, food service, and retail).[13] They found that there was no employment effect from the kind of state minimum wage increases enacted during the 16-year period. The second study employed a similar methodology to examine the restaurant and bar sector in 1,825 counties and found “no evidence of disemployment” resulting from higher minimum wages.[14]

One reason a higher minimum wage does not have discernible effects on employment is that most low-wage jobs are in local retail and service sectors that can’t relocate without losing their customer base. Furthermore, low-wage workers will spend much of their higher incomes in the local economy. The increased demand for local goods and services translates into increased need for workers in those sectors.

There are additional reasons that employment is not measurably affected.[15] First of all, the rise in the minimum wage does not translate into a large increase in overall costs for most businesses. Second, there are offsetting gains to business: lower turnover rates, reduced absenteeism, reduced costs of recruitment, and improved customer service. Lower turnover rates increase average worker experience and productivity.

Conclusions

There is a compelling case for a higher minimum wage. The federal and state minimum wage, now $7.25, has been significantly eroded by inflation and lags far behind the growth in productivity over the past 40 years. The wage does not come close to providing families with the income to meet basic needs; for families with children this is the case even when there are two full-time workers.

Inaction by Congress and state legislatures has led many cities and counties to adopt a local minimum wage. A $12 county minimum wage, phased in between now and 2019, would raise the incomes of at least 63,000 workers in Polk County, while the $15 wage would benefit over 88,000 workers. Either way, over three-fifths of those gaining would be full-time workers, and most (87 percent) would be age 20 or older. The increased incomes of low-wage workers would total $230 to $444 million, which in turn would increase spending in local retail and service establishments by many millions of dollars, boosting the local economy.

[1] The higher minimum wages would be phased in as follows:
$12 in 3 years: 2017 = $8.83, 2018 = $10.41, 2019 = $12.00
$12 in 5 years: 2017 = $8.20, 2018 = $9.15, 2019 = $10.10, 2020 = $11.05, 2021 = $12.00
$15 in 5 years: 2017 = $8.80, 2018 = $10.35, 2019 = $11.90, 2020 = $13.45, 2021 = $15.00
[2] Larry Mishel. “Low-Wage Workers Have Far More Education than They Did in 1968, Yet They Make Far Less.” Economic Snapshot, Economic Policy Institute, January 23, 2014. http://www.epi.org/publication/wage-workers-education-1968/
[3] The minimum wage in 1968 was $9.56 in 2015 dollars. Productivity increased by a factor of 1.97 from 1968 to 2015. Thus 1.97 times $9.56 is $18.81.
[4] See The Cost of Living in Iowa, 2016 Edition. http://www.iowapolicyproject.org/2016Research/160405-COL.html
[5] Of the 33 ordinances enacted in 2012 or later, two (San Francisco and Mountain View, CA) replaced an earlier ordinance, so only 31 additional cities enacted a minimum wage in that time period.
[6] These estimates were based on wage data from the U.S. Census Bureau’s American Community Survey for 2014. The workers benefiting are assumed to be all those earning a wage that would still be less than $12 by the year 2019 (or 2022), or $15 by 2021, if their wages rose by the estimated rate of inflation between now and then, using Congressional Budget Office inflation projections.
[7] The estimates are based on the Public Use Microdata Sample from the American Community Survey, and these data are available only for certain geographic areas called PUMAs (Public Use Microdata Areas). Unfortunately, Polk County is not a PUMA by itself, and in order to include all of Polk County it was necessary to include eastern Dallas County as well. The result is that workers in eastern Dallas County who commute to Polk County are included in the analysis, but workers commuting from other counties are not. The estimates also include eastern Dallas County workers who work elsewhere in the metropolitan area (though they account for less than 9 percent of the total). However, we know that overall the estimates are conservative because the total estimated workforce that is the basis for the estimates from the PUMA data is substantially below what we know to be the workforce from other published data. Given that Polk County dominates the sample data, we have no reason to believe that the demographic characteristics of those benefiting from the wage increase would be significantly different if we had 100 percent of Polk County workers, and only Polk County workers, in the sample.
[8] Golonka and Hoffman. State Strategies to Reduce Child and Family Poverty. June 2008.
[9] Greg Duncan, Ariel Kalil, and Kathleen Ziol-Guest, Economic Costs of Early Childhood Poverty. Washington, D.C.: Partnership for America’s Economic Success, February, 2008.
[10] Ibid.
[11] Nicole Keenan and Howard Greenwich. Economic and Equity Outcomes of a $15/hr Seattle Minimum Wage. Puget Sound Sage. April 2014.
http://www.pugetsoundsage.org/downloads/Economic%20and%20Equity%
20Outcomes%20of%20a%20$15%20Minimum%20Wage%20in%20Seattle_1.pdf

[12] John Schmitt and David Rosnick, “The Wage and Employment Impact of Minimum-Wage Laws in Three Cities.” Center for Economic and Policy Research, March 2011 http://www.cepr.net/documents/publications/min-wage-2011-03.pdf ; Michael Reich, Ken Jacobs and Miranda Dietz (eds.), When Mandates Work: Raising Labor Standards at the Local Level, University of California Press, 2014 http://irle.berkeley.edu/publications/when-mandateswork/ ; Michael Reich, Arindrajit Dube, and Suresh Naidu, “The Economic Effects of a Citywide Minimum Wage,” University of California-Berkeley, 2007 http://www.irle.berkeley.edu/cwed/wp/economicimpacts_07.pdf ; University of New Mexico, Bureau of Business and Economic Research, “Measuring the Employment Impacts of the Living Wage Ordinance in Santa Fe, Fe, New Mexico,” June 30, 2006. http://bber.unm.edu/pubs/EmploymentLivingWageAnalysis.pdf
[13] Michael Reich, Arindrajit Dube, and T. William Lester, “Minimum Wage Effects Across State Borders,” Review of Economics and Statistics, 92(4), November 2010: 945–964. www.irle.berkeley.edu/workingpapers/157-07.pdf
[14] John Addison, McKinley Blackburn, and Chad Cotti. “The Effects of Minimum Wages on Labor Market Outcomes: County-Level Estimates from the U.S. Restaurant and Bar Sector.” British Journal of Industrial Relations, 50 (3), 2012: 412-435. http://www.rcfea.org/RePEc/pdf/wp02_08.pdf
[15] John Schmitt, Why Does the Minimum Wage Have No Discernable Impact on Employment? Center for Economic and Policy Research, February 2013. http://www.cepr.net/documents/publications/minwage-2013-02.pdf



Appendix

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