Finance

The Rise of the Hyperlocal Minimum Wage

December 9, 2013

By Don Lee

While President Barack Obama and Congress keep talking about the plight and economic cost of Americans' declining incomes, a growing number of states and municipalities frustrated by federal inaction are moving to do something about it.

Legislators and voters in five states _ California, New York, New Jersey, Connecticut and Rhode Island _ and in four local governments this year approved measures raising the minimum wage above the current national rate of $7.25 an hour, in one case as high as $15 an hour.

At least five more states, including Maryland and South Dakota, and several cities are expected to take up the issue next year. Though states in the past have approved increases in the minimum wage, this year's developments provide a higher floor for wages next year in at least 21 states, a record number.

The burst of activity, which has alarmed business groups, reflects a growing concern over stagnant wages, lost purchasing power and the widening gap between the richest Americans and everyone else _ a gap that is now at its widest since the Great Recession.

Moreover, many of the new jobs being created in the economic recovery are in industries most likely to pay the minimum wage. Retailers and restaurants accounted for nearly one-third of job growth in the last 12 months.

Inflation, meanwhile, has steadily eroded the value of the federal minimum wage, which last rose in 2009 and peaked in 1968 at $8.56 an hour in inflation-adjusted 2012 dollars.

With labor unions weakened and employers feeling little pressure to pay more in a slow economy, market forces are offering no relief for low-wage workers, said Georgetown University economist Harry Holzer.

Partisan divisions in Washington have continued to stymie efforts to increase the national minimum wage. So state legislatures and even city councils are jumping into the void.

"There's nothing else positive _ no other force out there _ so people are willing to say, 'Let's try it,' " Holzer said.

In Maryland, councils in Montgomery and Prince George's counties _ suburbs of the nation's capital _ last month approved a minimum-wage increase to $11.50 an hour by 2017. The District of Columbia last week endorsed a similar measure.

"Clearly, Congress is non-functioning," said Councilwoman Valerie Ervin of Montgomery County, a mostly affluent area with significant pockets of poverty. "As the groundswell of support continues to come from cities and towns, we are going to create the movement from the bottom up."

Obama called for a higher minimum wage in his State of the Union address this year, and he repeated it Wednesday, a day before unions and workers staged one-day strikes and protests across the country demanding better pay at fast-food restaurants and other businesses.

But with the White House occupied by health care, immigration and budget issues and a sharply divided Congress showing little urgency, few expect Washington to enact a minimum-wage increase any time soon. A Senate bill that would increase the federal rate to $10.10 an hour over a two-year period may come to a vote this week, but prospects for passage by both houses are dim.

At the state level, the highest current minimum wage is offered in Washington state, where the pay is indexed to inflation annually and will climb to $9.32 an hour in January.

California's minimum wage is scheduled to rise to $9 in July and to $10 at the start of 2016.

Those wages are well below the $15 an hour that voters in the Washington town of SeaTac approved last month for airport and hotel workers within their borders, giving them the highest minimum wage in the nation.

Now, the Service Employees International Union and other groups that organized the fast-food protests last week are pressing for SeaTac's rate to become the new national standard.

Restaurant and other business groups have become accustomed to periodic pushes for a higher federal minimum wage but said they have seen nothing like the current wave, especially among local jurisdictions.

"The activity at the county and municipal level is getting a bit out of control," said Scott DeFife, executive vice president with the National Restaurant Association.

Although labor activists are hoping the movement will spur other cities and counties to follow suit, DeFife said what might happen instead is that employers will move to neighboring areas for cheaper labor.

"The dramatic increases are definitely going to impact prices and could start to impact small businesses to compete with other people across the county line," he said.

Union organizers said that even in states with higher minimum wages, workers are struggling.

On Thursday, workers at fast-food restaurants walked off the job in 100 cities.

Fanny Velazquez, a cashier at a McDonald's in Los Angeles, Calif., was one of them. The 34-year-old said she earns $8.70 an hour, but that's after eight years on the job and is still not enough _ with just 20 work hours a week _ to move out of her parents' home in South Los Angeles.

"I want to be independent," she said.

Many economists warned that a hike in the minimum wage sometimes results in a modest reduction in overall employment as businesses downsize. Holzer said the effect is likely to be about 1 percent of lost employment among the most affected groups _ young or low-wage workers _ for every 10 percent increase in the minimum wage.

Proponents argued that giving raises to minimum-wage workers would lift the overall economy by boosting their spending, but most economists said the stimulative effect would be minor.

That's because their numbers are relatively small: The Labor Department estimated 3.55 million workers were at or below the minimum wage last year, out of more than 75 million who are paid on an hourly basis and about 128 million workers overall.

Still, polls show most Americans favored raising the minimum wage.

And an increase would have a meaningful effect on some of the lowest-paid workers, a growing share of whom is older and better educated.

"It's not the average teenager who wants money for an app for his cellphone," said Jared Bernstein, the former chief economist for Vice President Joe Biden.

(Los Angeles Times staff reporter Tiffany Hsu in Los Angeles contributed to this report.)

(c)2013 Tribune Co.

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