Minimum-Wage Maximizing City Challenges

Ron Littlefield | August 27, 2014

 As the divided Congress stammers and stalls over almost every significant issue, cities are often forced to innovate and take matters into their own hands on topics formerly considered to be almost totally within the scope of federal responsibility.

 
Perhaps the most interesting of these issues is the debate around the minimum wage. Originally based on the Fair Labor Standards Act passed in 1938, the first minimum wage was $.25 per hour. Today, the hourly rate for most of the lower 48 states is $7.25, which has not been adjusted since 2009. Most calculations agree that, had the wage kept up with inflation, it would be now be $10.90.
 
The present rate will barely provide a poverty-level existence for a single individual employed full time, never mind a family. As all efforts to increase the basic national rate have been strenuously and (so far) successfully rebuffed, the responsibility has fallen to cities and states to try to make things more balanced and responsive to today’s realities. 
 
As of December 2013, according to a Pew report, 19 states plus the District of Columbia have set their own minimum wages, ranging from $7.35 in Missouri to $9.19 in the state of Washington. Cities have been active as well. Among the more prominent: New York at $8.00 and San Francisco at $10.74.
 
More recently, Seattle has been the focus of much national attention on the minimum wage debate. Kshama Sawant, a well-educated young political activist and avowed socialist, ran successfully in November 2013 for a seat on the Seattle City Council, promising to pursue a $15 minimum wage. Last year, SeaTac, the small municipality that surrounds the airport serving Seattle and Tacoma, narrowly passed a referendum raising the minimum wage to $15. Sawant, in her new capacity on the Seattle Council, set about to achieve the same result for the larger city of Seattle. 
 
In May 2014 she essentially achieved her goal when Seattle Mayor Ed Murray brokered a compromise that would raise the rate over time to $15 – though Sawant was unhappy with the final product that gave additional time to large employers. In an act of political purity rarely seen today, Sawant was the only holdout on the council refusing to sign on to the final version of the ordinance that reflected her own initiative. Subsequently, two business coalitions unsuccessfully sought to collect sufficient signatures on a petition to force a referendum on the matter.
 
Meanwhile, San Diego is in the middle of a similar political dogfight. On August 1, the City Council established a graduated rate, which will increase the minimum wage to $9.75 on Jan 1, 2015, and to $11.55 by 2017. The plan is that the wage will be adjusted by inflation after 2019. The ordinance was subsequently vetoed by Mayor Kevin Faulconer on August 8, followed by an override of that veto on August 18 by the City Council. Now, much like in Seattle, the San Diego Small Business Coalition has announced plans to try and secure over 30,000 signatures on a petition within the required 30 days to subject the issue to a referendum. We shall soon see whether that effort is successful.
 
As the debate and countervailing political winds push the issue to the left and right, it is apparent that few can take comfort in our present circumstances.  Failure to act in a timely manner on a national measure has left us with two levels of minimum wage: the legal limit set by statute and a second de facto wage that more accurately reflects the actualities of the market.  In many cities, the $7.25 minimum wage serves as little more than a very low benchmark – a reference point for discussing the state of the local economy.
 
Recently, one of our local Chattanooga television stations conducted "man on the street" interviews for the evening news. I watched as the reporter interviewed a number of our citizens on the question of raising the minimum wage.  Of course, the responses covered the full range of opinions from a very hopeful "yes" to a very concerned "absolutely not." This being a rather conservative part of the country, I was not surprised to hear more than a few respondents express a belief that raising the rate would be hard on small business.    
 
I soon saw the face of a young contractor I happened to know quite well. I had been one of his first customers when he started a small HVAC company and I knew him to be an ethical and fiscally conservative businessman. I also knew he had to watch his expenses carefully as any small business owner does. However, when asked how a higher minimum wage might affect his business, he replied he “would be embarrassed to pay his employees minimum wage for the work they do.” I couldn’t wait to see him again so I could tell him how proud I was of him and his philosophy.
 
The battle is still raging and promises to go on for some time yet to come.  In those communities that have taken action on their own, some employers have reacted by reducing jobs and benefits.  Others have absorbed the higher rate and moved on. The jury is still out on the ultimate effect on the greater economy.   
 
So why is all this important to city innovation, particularly as it relates to poverty?
 
In any consideration of poverty and income disparity, it is practically impossible to carry on a conversation without reference at some point to the uniform minimum wage. As that basic minimum standard becomes less uniform, cities are forced to establish their own micro economies that might put them at a further disadvantage to their suburban neighbors. Thus, an already complex situation (dealing with urban poverty) becomes even more challenging and unmanageable.
 
The City Accelerator offers an unprecedented opportunity for leading-edge cities to learn from one another and act in concert on common problems. Raising the level of debate on basic issues such as the federal minimum wage just might jar the deadlocked Congress into action and move us all toward a more desirable future.  
 
 

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