By David A. Fryxell
Amy Carpenter has been on both sides of the minimum-wage debate that's now moving from the state legislature to New Mexico's cities and towns. Carpenter, a Las Cruces high-school teacher, has been a small-business owner as well as a waitress, a single mom supporting two small children. She was recently reminded of the challenges of living on minimum wage by her roles in the Black Box Theatre's production of Nickel and Dimed, based on the book by Barbara Ehrenreich. The author spent two years and worked six jobs in three cities to experience firsthand how people live "on the wages available to the unskilled."
"I've been in most of the positions of women in that play," Carpenter says, reflecting on how art imitated her own life. "I've scrubbed toilets and worse."
But she recalls most vividly an experience as the boss, when she and her then-husband ran a restaurant in the early 1980s, the Animas River Yacht and Sporting Club in Durango, Colo. "Members of the volunteer fire department used to come in and have lunch—15 people sitting there for two hours, drinking entire containers of iced tea. The waitresses would kill themselves, but this group would stiff them, wouldn't tip them a dime."
The waitresses never complained, Carpenter recalls, until one day one came to her in tears, ill with a migraine: "They didn't tip me again." Taking matters into her own hands, Carpenter added a 15 percent gratuity to the firemen's bill next time. They simply crossed it out.
"I took off my apron and marched down the street with my five-year-old in tow. He later told me, 'Mommy, I hope you never get that mad at me. Your face was all red!'"
Storming into the office of the head fireman, Carpenter slapped the lunch check down on his desk: "Don't ever come back until you can treat my girls as well as they treat you!"
Unruffled, the fireman replied, "If you paid those girls what they're worth, we wouldn't be having this discussion."
"If I paid them what they're worth," she shot back, "you couldn't afford to eat in my restaurant."
"With that attitude," he responded, "you'll soon be out of business."
Indeed, the restaurant soon was out of business, though due more to Carpenter's alcoholic soon-to-be-ex-husband than to her management policies. Two years after that heated exchange, Carpenter found herself working as a waitress at the Silver Spur restaurant in Durango—and the firemen's group came in.
She volunteered to serve their table. "I gave them great service," she recalls. "And they left an enormous tip."
But that's not the happy ending to the story of this part of Carpenter's life. She also acutely remembers the struggle of supporting herself and two children, ages six and seven: "I was just scraping by. It was killingly hard, very depressing. Our gas got turned off for nonpayment and I had to wrap the kids in sleeping bags. All the houseplants died. It was just awful, the sense of helplessness. No one could hear me and understand."
Community organizers and advocates for the working poor vow to make New Mexicans understand, and to add to the 18 states that have set a minimum wage higher than the federal $5.15 an hour, which hasn't been raised since 1997. Voters in Ohio, Nevada and Arizona may decide on statewide minimum-wage increases this fall; in New Mexico, which lacks the ballot initiative, proponents must look to the legislature for action.
Despite backing from Gov. Bill Richardson, however, a proposed hike to $7.50 an hour died in the 2006 legislative session. Although some legislators from the southwest corner of the state supported an increase—including Sen. Ben Altamirano (D-Silver City) and Rep. Manny Herrera (D-Bayard)—others, such as Rep. Dianne Hamilton (R-Silver City) and Rep. Dona Irwin (D-Deming), opposed it, citing potential job losses. Critical to the bill's demise was the opposition of three southern New Mexico Democrats in the senate—Mary Kay Papen of Las Cruces, John Arthur Smith of Deming and Tim Jennings of Roswell—who crossed party lines and voted with the GOP to block passage. They argued that the legislation would have caused thousands of jobs to flee their districts to neighboring Texas or Mexico.
So, stymied at least until the 2007 session, groups like ACORN (Association of Community Organizations for Reform Now), AFSCME (American Federation of State, County and Municipal Workers) and New Mexicans for a Fair Wage, a coalition of more than 50 activist organizations, are taking the battle to the local level. Nationally, at least 130 municipalities and counties have seen "living wage" campaigns since the late 1990s. Initially these focused on requiring city contractors to pay higher wages; recently, with backing ranging from labor unions to the National Council of Churches, the thrust has broadened to raising the minimum wage for all workers.
"This has been one of the longest stretches without an increase at the federal level, and we're not optimistic about getting any federal action soon," explains Matthew Henderson, head organizer for ACORN in Albuquerque. "So we're looking to the state and local level to do the fair thing for working families."
After the wage boost failed in the legislature, State Economic Development Secretary Rick Homans told the Albuquerque Journal, "The governor intends to use all the tools at his disposal to raise the minimum wage, either statewide or locally. It's the right thing to do, and the governor intends to make it happen."
Already, in 2003, Santa Fe's city council voted to raise the local minimum wage to $8.50 an hour, with automatic increases to $9.50 this year and $10.50 in 2008—the highest level in the country. Late last month, the Albuquerque city council passed a $6.75 an hour minimum wage, which will go to $7.15 in 2008 and $7.50 in 2009.
Henderson won't say what cities ACORN might target next, but Las Cruces—the state's second-largest city—is an obvious choice. Where else? According to Carter Bundy, political action representative for AFSCME, "The New Mexicans for a Fair Wage Coalition has decided to choose several counties and/or cities around New Mexico. Given Silver City's legendary progressive and labor history, it has been considered one of the top candidates for a minimum-wage increase at the local level. . . . Doing it county-wide would be even better. The state's loss may be Grant County's gain, as we don't have to water down a good minimum-wage bill for Grant County like we had to at the Roundhouse."
The idea of a local minimum-wage increase came up at candidate forums prior to the March Silver City mayoral and council election, with only council incumbent Steve May voicing opposition. Gary Clauss, who lost his bid for mayor but retains a seat on the council, says, "I think that a raise in the minimum wage is necessary for people to start to have a little dignity in their lives. I feel that wages being so low for starting workers contributes to many social ills. With so many parents having to work multiple jobs, it makes for a difficult home life for children whose parents don't have any time to spend with them. So, yes, we could have a dialogue in Silver City on this crucial issue."
Amy Carpenter, who became a teacher after years of getting by on four hours of sleep a night as she worked her way through college, also cites families as a reason to support a minimum-wage increase: "Now every single day I deal with children with absent parents, because there's no way in the world a mother can stay home with her babies if the dad is not making a really great salary. It isn't that parents don't care. They're desperate to make ends meet."
Even though she's also been on the small-business-owner side of the debate, Carpenter adds, "I absolutely think the minimum wage needs to be raised. It's shocking what the government considers a minimum wage to live on. I know, because I did it for years—working two, sometimes three jobs."
Minimum-wage laws actually began at the state level, not the federal, in Massachusetts in 1912. A federal minimum wage didn't catch on until the Great Depression, with the 1938 passage of the Fair Labor Standards Act, which set rules for overtime pay and child labor and established a minimum wage of 25 cents an hour.
Politics as much as economics has dictated subsequent increases. The minimum wage was raised five times in the 1970s but just twice in the 1980s. The last hike, in 1997, took the rate from $4.25 to $5.15 an hour, where it has remained for almost a decade. An employee who gets more than $30 a month in tips can be paid as little as $2.13 an hour from the employer's pocket, with tips making up the difference. In New Mexico, "tipped employees" must be paid a combined $5.60 an hour, with tips allowed to account for all but $2.13 of that total. Eight states' laws do not allow tips to be counted toward the minimum wage.
Since 1997, inflation has completely eroded the effect of the last minimum-wage increase: $5.15 now is the equivalent of $4.23 then. As a fraction of the average hourly wage of all US workers, the minimum wage stands at its lowest level—33 percent—since 1949. Henderson adds, "If the minimum wage had kept pace with the cost of living since 1968, it today would be $8.82."
Nationally, only about three percent of the workforce earns minimum wage. An increase to $7.25 an hour, however, would mean a raise not only for those at the current minimum, but also for everyone in-between—about 5.8 percent of the workforce or 7.3 million employees, according to the pro-increase Economic Policy Institute. Another 8.2 million workers—6.5 percent of the labor force—would likely benefit from "spillover effects," the institute figures.
The impact would be almost double in New Mexico, where wages lag behind much of the nation. Almost six percent of New Mexicans earn the minimum wage, and an increase to $7.25 would directly benefit 10 percent of all workers, nearly 75,000 people.
The statistics cited by New Mexicans for a Fair Wage are slightly different: "An increase to $7.50 for those currently working at $5.15 an hour will put an additional $100 per week ($5,000 per year) into the pockets of 123,000 working New Mexicans currently earning the federal minimum wage. $100 each week pays for two tanks of gas to get to work and a bag of groceries." That assumes, however, that all New Mexicans working at minimum wage work full-time (40 hours a week times a $2.35 hourly increase would actually be an extra $94); the reality is far different. And it conjures up a $615 million windfall for the working poor with—seemingly—no pain for anyone else, as though the money for that extra pay just blows in on the springtime winds.
For many living-wage advocates, though, ultimately the economics don't matter—it's a moral issue: Expecting anybody to live on $5.15 an hour is just plain wrong. That moral force has galvanized progressives across the country the way conservatives have been motivated by their own burning social issues. As Albuquerque ACORN organizer Jen Kern told The New York Times, "This is what moves people to the polls now. This is our gay marriage."
Even churches have joined the cause. Monsignor Jerome Martinez was influential in promoting Santa Fe's minimum wage, arguing, "The Scripture is full of matters of justice. How can you worship a God that you do not see and then oppress the workers that you do see?"
When the Pew Research Center recently polled voters on raising the minimum wage to $6.45, a stunning 86 percent were in favor. A Gallup poll last fall found a similar 80 percent supporting Congressional action to increase the minimum wage. The issue may enjoy such wide support, even across party lines, in part because 60 percent of all Americans have at one time or another earned the minimum wage themselves.
Says Henderson, "It's taken awhile, but politicians have realized that if this is a policy they don't support, they're really standing in the way of the voters."
"The natural tendency is for people to support these things," Rick Berman of the anti-increase Employment Policies Institute ruefully told the Times. "They believe it's a free lunch."
But who really benefits from an increase in the minimum wage? Moral crusaders no doubt picture the typical minimum-wage worker as a single mom much like Amy Carpenter once was, barely making ends meet. According to government data from the Employment Policies Institute, however, only 15 percent of minimum-wage recipients actually are raising a family on those earnings. Only 17 percent of New Mexicans who'd benefit from a minimum-wage increase to $7.25 are either single parents or a single earner in a household with children. Nationwide, the average household income of a minimum-wage earner is $43,000 a year. In New Mexico, the average family income of workers who would benefit from a boost to $7.25 is $37,525.
How can that be? Many minimum-wage workers, it turns out, are teens living with their working parents, adults with no dependents or part of dual-earner married couples. More than a quarter—28 percent—are teenagers. As Nobel Prize-winning economist Joseph Stiglitz has observed, "Today's labor market often has both spouses and even a teenage child or two working. Surely they do not all need to earn enough to support their own family."
The Economic Policy Institute (the pro-increase one of these dueling institutes) points out that 760,000 single mothers would get a raise from a boost to $7.25 an hour, and that single moms would benefit disproportionately—nearly double their representation in the overall workforce. Even so, only 10.4 percent of workers who would benefit from a minimum-wage hike are the single mothers most of us envision.
It's also true that women in general and minorities would benefit disproportionately from a minimum-wage increase. Of those getting a raise at $7.25 an hour, 60.6 percent would be female. African-Americans would benefit slightly more than their share of the total workforce, while Hispanics—13.4 percent of the US workforce—would represent 19.7 percent of workers getting a bump.
Another stereotype of minimum-wage earners is that these are Wal-Mart workers. In fact, most Wal-Mart employees nationally start at $6.50 to $7.50 an hour, and the company's average hourly wage is $9.68. Even the CEO of Wal-Mart, Lee Scott, recently came out in favor of increasing the minimum wage, arguing that while it "would have a minimal impact on our workers. . . we think it would have a beneficial effect on our customers."
Nor are minimum-wage earners primarily putting in the 40 hours a week that the New Mexicans for a Fair Wage's $100 weekly figure assumes. Both pro- and con- policy institutes agree—while putting different spins on the numbers—that fewer than half of all minimum-wage workers (43.9 percent) work full time. More than a fifth of minimum-wage earners work fewer than 20 hours a week.
The same sort of glass half-full/half-empty view applies to where the benefits of a minimum-wage increase would be felt. The Economic Policy Institute notes that 38.1 percent of the benefits from a boost to $7.25 an hour would go to households in the bottom fifth of income. But nearly a quarter of the benefits would go to the wealthiest two-fifths of US households. The rival Employment Policies Institute cites a Syracuse University study showing that 83 percent of the benefits of the last hike went to families above the poverty line. As the Progressive Policy Institute, yet another think tank, puts it, "The chief effect of a higher minimum wage today would be to increase incomes, not for working poor people, but for a group of workers who are predominantly part-time, second earners in middle-class families."
If you really want to see a battle of statistics and studies, though, open up the can of worms that's central to the minimum-wage debate: Does raising the minimum wage cost jobs?
The answer seems obvious to anyone who's taken an Intro to Economics course. As another Nobel Prize-winning economist, Gary Becker, has observed, "Even a wizard would have a great deal of difficulty repealing the economic law that higher minimum wages reduce employment. Since politicians are not wizards, they should not try." Recently retired Federal Reserve Chairman Alan Greenspan, the economy's guru since 1987, is even more blunt: "The reason I object to the minimum wage is that I think it destroys jobs, and I think the evidence on that, in my judgment, is overwhelming."
On a more down-to-earth level, critics complain, "Most of these people who want to increase it have never tried to make a payroll in their lives," as Silver City council member Steve May, owner of Adobe Springs restaurant, says. "From $5.15 an hour to $7.50 is a 45 percent increase. How the hell do they expect small-business owners to afford that?"
May points out that not only wage expenses go up when the minimum wage is raised—so do workmen's compensation costs, Social Security taxes and Medicare costs. And what about veteran employees who've advanced beyond minimum wage? It wouldn't be fair, he says, to pay newcomers $7.50 an hour and not give them a raise. Overall, the New Mexico Restaurant Association—which nonetheless favors a federal phased minimum-wage increase—figures the increase in labor costs from a jump to $7.50 would total 32 percent.
"I'd just as soon shut down," May says, adding that he was bracing for the possibility of having to do just that this past legislative session. He vows to fight any local Silver City increase "tooth and nail."
Businesses that don't simply shut their doors may resort to layoffs or leave open jobs unfilled. Worse, from the perspective of trying to fight poverty, these job losses fall most heavily on the very workers minimum-wage boosters are trying to help: "Minimum-wage increases create both winners—workers who get higher wages and keep their jobs—and losers, workers who lose their jobs and are faced with greater difficulty finding a new one," according to David Neumark, senior fellow at the Public Policy Institute of California. "On net, poverty seems to rise—likely because the job losses associated with a higher minimum wage fall disproportionately on poor families and adults rather than on the teenage segment of the low-wage workforce."
Black teenagers are the unlucky exception. Researchers at Cornell University, the University of Connecticut and the Lewin Group in 2000 found that a 10 percent increase in the minimum wage results in an 8.5 percent decrease in employment for black young adults and teens.
On the other hand, higher minimum wages attract teens from upper-income families into the job market, according to a 2004 Duke University study. These teens displace previously employed low-skilled workers.
"The people who are hurt are small-business owners and people on the fringes of the labor market," says Paul J. Gessing, president of the Rio Grande Foundation, a free-market think tank based in Albuquerque. "The people on the fringes are also those who are least organized and least able to be an effective policy voice in the debate."
The state restaurant association notes that 40 percent of all New Mexicans get their first job in the restaurant industry: "An increase in the minimum wage will discourage restaurant owners from offering much-needed employment to workers with little or no job experience. . . . Increasing the minimum wage will put lower-skilled and disabled New Mexicans out of work, most hurting the people it is intended to help."
Convinced? Not so fast. "The academic argument is all well and good," says Carter Bundy of AFSCME, "but the truth is that, just as with child labor laws, environmental protection laws, safety and health regulations, and previous minimum-wage laws, business concerns, while maybe honestly held, have been proven false time and time again. . . . It's high time the opponents of laws supporting basic human decency and well-being be called out for their phony scare tactics."
Such as, in Bundy's view, claiming that increasing the minimum wage costs jobs. He cites a study by New Mexico Voices for Children's Fiscal Policy Project that looked at 2002-2005 job growth in 12 states and the District of Columbia with higher minimum wages than the federal rate. The vast majority showed steady job growth; even in retail trade, most likely hit by a higher minimum wage, growth rates showed little difference from the state's overall trend. (The 2.35 percent average overall growth rate for those states, however, was well below New Mexico's 4.94 percent for the same period.)
Another study by yet another group with "policy" in its name, the Fiscal Policy Institute, challenges the conventional wisdom that minimum-wage increases hurt employment in small businesses. Small employers in higher-minimum states generally fared better than those in other states between 1998 and 2001, according to the findings. The number of businesses with fewer than 50 employees increased nearly twice as much in higher-minimum states, and the number of retail businesses, retail employees and retail payroll all grew faster.
The findings most often cited by wage-increase proponents come from research in 1995 and 2000 by two Princeton economists, David Card (now at the University of California-Berkeley) and Alan B. Krueger. Card and Krueger examined the effect on fast-food and other low-wage jobs of New Jersey's 1992 minimum-wage increase to $5.05 an hour, while neighboring Pennsylvania remained at the federal rate, then $4.25. Both researchers initially believed their study would reinforce the widely held dictum that higher minimum wages destroy jobs. But their data showed the opposite: Not only did New Jersey's higher rate not hurt employment, in some instances it actually slightly increased employment.
As most economists scratched their heads over those contrary results, others leaped to the attack. The Employment Policies Institute charges that the telephone survey Card and Krueger used was "very poorly constructed, making accurate collection of data impossible." For example, Card and Krueger found one New Jersey Wendy's, which had zero full-time workers in February 1992, had hired 35 by November, while a Burger King in Pennsylvania mysteriously dropped from 50 full-time employees to 15—even as it simultaneously shedded part-timers. The rival Economic Policy Institute counters, "When Card and Krueger redid their study using unassailable government data, they found the same result—thus confirming both the reliability of their earlier sample and, more importantly, their findings."
Similar academic mud-wrestling has made it difficult
to nail down the jobs impact of Santa Fe's dramatic 2003 boost. According
to the Fiscal Policy Project, "Job growth in Santa Fe has accelerated to nearly
three percent a year since the minimum wage was increased to $8.50 an
hour. . . a rate not seen since the first half of the 1990s." Late
last year, a 90-page report by the University of New Mexico's Bureau
of Business and Economic Research (BBER) came to a similar conclusion: "Overall,
the implementation of the living wage does not appear to have resulted
in employment declines." Santa Fe's unemployment rate continued
to be below that of Las Cruces and Albuquerque as well as the state as
a whole. On the other hand, a study by Aaron S. Yelowitz of the University
of Kentucky found that Santa Fe's wage hike "had significant and
negative effects on the labor market. . . concentrated on the least-skilled
members of the economy." That research in turn drew criticism from
Robert Pollin of the University of Mass
One thing researchers seem to agree on about Santa Fe's living wage is that the city's exemption for businesses with fewer than 25 employees led to "a host of unintended economic behaviors" (Yelowitz) and created "some perverse incentives" (BBER). According to the BBER, "It appears that at least some employers are using a variety of means to keep their workforce below 25. . . increasing the job duties and workloads of their employees so as to avoid hiring more employees; 'sharing' employees with other businesses in their industry so that several businesses can avoid hiring more employees; automating aspects of their business to reduce the number of employees; delaying or canceling projects or expansions that would require hiring more employees." The exemption meant that Santa Fe's wage affected only nine percent of all businesses, although 58 percent of all employees work for an affected employer.
The newly passed Albuquerque minimum wage has no such exemption. In a smaller town like Silver City, such an exemption would mean that a higher minimum wage would apply to only a handful of large employers such as Gila Regional Medical Center, Western New Mexico University, Silver Consolidated Schools, Wal-Mart and the new Teleperformance call center, which is already hiring at above minimum wage. Grant County's largest employer, Phelps Dodge, lies primarily outside the city limits.
Another issue raised by the Santa Fe ordinance that's no longer in contention is whether the city had the constitutional right to regulate wages. A state court judge, later upheld by the state appellate court, ruled that the city's "home rule" powers under the New Mexico constitution gave it such authority. According to the New Mexico Municipal League, municipalities with "charters adopted since passage of the Home Rule amendment to the state constitution. . . can do things not specifically authorized for municipalities by the state statutes, as long as those things are not specifically prohibited by statute, either." According to a footnote to the Santa Fe court decision, such home rule municipalities in the southern part of the state include Las Cruces and Alamogordo—but not Deming or Lordsburg. Bizarrely, it adds, "The Town of Silver City operates under a charter granted by the Territorial Legislature in 1878 and 'is not generally considered to be either a constitutional or statutory home rule municipality.'" So if Silver City does pass a higher minimum wage, expect a legal challenge on constitutional grounds.
The issue of job losses in other New Mexico cities, near the border with Texas or Mexico—Roswell, Las Cruces and Deming—proved pivotal in the 2006 legislature's minimum-wage debate. The jobs at risk were no mere academic statistical abstractions: Luna County's largest private employer, Border Foods, was prepared to move its operations—and jobs—to Mexico if the minimum wage shot up to $7.50, according to Rep. Dona G. Irwin, a Democrat who represents the county in the state House and who voted against the wage hike. Another large food-processing employer, Proper Foods Inc., which moved from El Paso to Deming eight years ago, would have gone back to Texas. While the minimum-wage increase was pending in the legislature, Proper Foods stopped construction on a 30,000-square-foot expansion that would add 100 jobs.
"We could possibly have lost 2,000 jobs," says Irwin, who adds that the issue stirred strong feelings in the Deming area. One small-business owner sent her a bouquet of flowers after her vote, saying, "Thank you. Now I can stay in business." But Irwin also took some heat, such as an email that originated in Colorado, blaming her and other Democrats who crossed over to block the bill: "Do you realize how many hungry children there are?" asked the email, which zipped throughout New Mexico.
Irwin fires back: "How many more hungry children would there be if we lost 2,000 jobs?"
John J. Johns, owner of Proper Foods, told the Albuquerque Journal that he competes against food processors all over the country and that his products are labor-intensive. Even a proposed exemption for food processors, which was attached to one version of the minimum-wage bill, wouldn't help, Johns said: The low-skilled, entry-level workers he depends on would then just jump to better-paying jobs at fast-food restaurants.
Gov. Richardson and legislative leaders "don't understand the impact being on the border has on wage levels," Sen. Tim Jennings of Roswell told the Journal.
Irwin points out that neither state bordering
New Mexico along I-10, Arizona or Texas, has a higher minimum wage
than the federal mandate. (Arizona advocates are gathering signatures
for a ballot measure this fall that would boost the state's minimum
wage to $5.95 an hour in 2007 and $6.75 in 2008, indexed to inflation
thereafter.) "It needs to
start at the federal level," she says, "so the states all have
the same playing field."
Besides job losses, the other chief argument against upping the minimum wage is that it forces businesses to raise prices—adding to inflationary pressures already pushed by skyrocketing fuel costs. Restaurateur Steve May says, "Raising the minimum wage is a feel-good thing, but wait till you have to buy something and you see the impact on your wallet. I'd have to raise prices, and my clientele can't afford that. One way or the other, the consumer pays for a minimum-wage increase."
Many restaurants operate on profit margins as thin as two to five percent, May adds. "You'd have to pass on any wage increase, or else lay people off," he insists. And phasing in a minimum-wage increase wouldn't be much better: "It's still the same thing. They're just bleeding you dry instead of cutting your throat all at once."
A local minimum-wage increase would force businesses within the city limits to raise prices while sparing establishments on the other side of the line, May adds. That would put businesses like his at an unfair price disadvantage compared to competitors in, say, Arenas Valley.
But union activist Bundy contends, "Those who do raise prices do not have to raise prices very much to make up for the entire increase." He cites an Albuquerque study by Robert Pollin showing that the total price increase for all businesses would be just 0.19 percent. Even in the most heavily affected sectors, such as accommodations and food service, Pollin concluded that a 2.08 percent price increase would cover not only raising the minimum wage but also the ripple effect on other workers. Bundy adds, "And that's assuming (businesses) received zero savings from lower turnover, lower recruiting/retention costs, etc."
Those numbers don't add up for May. He cites the restaurant association's estimate of a 32 percent overall labor cost increase, and says that labor (along with related taxes) typically makes up 35 to 50 percent of a restaurant's total expenses. That math works out to about a 15 percent total increase in costs to pass along to customers. But May adds, "I'm sure it would be more than 15 percent. There's no doubt in my mind."
What about prices at the grocery store? Minimum-wage opponents have warned of soaring produce prices—also an issue in the current illegal-immigration debate. But an analysis by Phillip Martin at the University of California-Davis found that even a 40 percent increase in the average farmworker's wage would increase the average family's fruit and vegetable bill only two to three percent—about $9 a year.
In any case, Bundy thinks business opponents ought to keep in mind that the people who'd benefit from a minimum wage are also their customers. "Where do they think poor people spend their hard-earned extra thousand or so dollars a year when the minimum wage increases?" he asks. "Here's a hint: It ain't on Italian cars or European vacations. Too bad ideology gets in the way of some business owners realizing that when the lower end does better, they do better."
But some economists argue that it's precisely those on the "lower end" who most suffer from such price increases, just as they're most vulnerable to job losses. In a 2000 study of the winners and losers from raising California's minimum wage, Margaret O'Brien-Strain of the Public Policy Institute of California concluded that a higher minimum wage would cause the poor to pay proportionately more for basic purchases. The last federal increase, from $4.25 to $5.15 an hour, cost California families an average of $133 a year in higher prices, according to the study. Because goods produced by minimum-wage workers make up a larger share of a low-income family's total budget, however, the poor were harder hit by those price increases.
So what should we believe about the minimum wage, given this sea of conflicting statistics? And what should we do about it—on either the state or local level, since federal action is unlikely under the current administration? While the academics and interest groups shoot it out, the working poor barely scrape by and fall further behind.
Ultimately, if you agree that the goal is to help people like the waitresses Amy Carpenter got so worked up about years ago, the true test comes down to: How much does increasing the minimum wage help those most in need?
By now, you won't be surprised to learn that the experts disagree on the answer. True, 562 economists recently signed a letter stating that "modest increases in state minimum wages in the range of $1 to $2 can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed." And a 2001 study found that a hike to $6.15 an hour would lift nearly 900,000 people out of poverty. The Fiscal Policy Project says states with a higher minimum tend to have poverty rates at or below the national average, while 40 percent of other states have a poverty level above the US average.
Some question, though, whether the impact of a minimum-wage increase on the working poor isn't largely wiped out by higher taxes and the loss of government benefits tied to income. The anti-increase Employment Policies Institute cites two studies showing an effective tax rate of 90 percent on those extra dollars. But ACORN's Henderson says, "The $7.50 minimum wage would reward work and reduce dependence on welfare, but it would not eliminate the social safety net." A family of two to five members with a single $7.50 hourly wage earner would still qualify for Medicaid, food stamps and child care, he says, although a family of four with two $7.50 earners would qualify only for Medicaid.
Even assuming a minimum-wage increase does help the working poor, the question remains whether it's the best way to achieve what its backers hope. In California, the Public Policy Institute's O'Brien-Strain answers in the negative: "Overall, we find that increasing the minimum wage does not efficiently target the poor. An increase would redistribute extra earnings to any family that has a minimum-wage worker, regardless of the family's overall income level."
This argument goes back to the issue of who really works for minimum wage. Among the poorest 20 percent of California families, O'Brien-Strain found, three out of four do not include a minimum-wage worker—so an increase wouldn't help them at all. "These families end up paying higher prices without receiving any extra income," she concludes. "The redistribution of income that occurs with a minimum-wage increase is not from rich to poor, but from families without a minimum-wage worker to families with a minimum-wage worker"—who are, remember, often middle-class households with working teens. So poor families pay higher prices to help a suburban teen buy a new iPod? That's not exactly what minimum-wage boosters have in mind.
Steven E. Landsberg, who writes the "Everyday Economics" column for the online publication Slate, says, "The minimum wage kills very few jobs, and the jobs it kills were lousy jobs anyway. . . . In fact, the minimum wage is very good for unskilled workers. It transfers income to them. And therein lies the rightargument against the minimum wage."
Usually when society decides to transfer income to some group, Landsberg argues, all taxpayers share the burden. "By contrast, the minimum wage places the entire burden on one small group—the employers of low-wage workers—and, to some extent, their customers. . . . The minimum wage is nothing but a huge off-the-books tax paid by a small group of people, with all the proceeds paid out as the equivalent of welfare to a different small group of people. If a tax-and-spend program that arbitrary were spelled out explicitly, voters would recoil."
Is there a better way to help the working poor? Minimum-wage critics are great fans of the Earned Income Tax Credit (EITC), originally designed to offset low-income families' payroll taxes. In 1993, under the Clinton administration, the EITC was expanded to become the nation's largest assistance program, providing more than $4,000 in annual tax-free income to working families—either as a lump sum or in every paycheck. According to the Employment Policies Institute, "With the EITC, a full-time minimum-wage worker can experience an effective rate of $7.20 an hour." Almost 80 percent of EITC benefits in tax year 2002 went to families with adjusted gross incomes below $20,000 a year.
Cornell University economist Richard Burkhauser advocates expanding the EITC program to include older, disabled and other low-income workers without children. He also suggests making existing credits more generous to put more dollars into the hands of poor workers with children.
"The EITC does a better job of helping the people you'd really want to help, as opposed to say, middle-class teenagers working summer jobs," writes Landsburg. "It's pretty hard to argue that a minimum-wage increase beats an EITC increase by any criterion."
While praising the EITC, the Economic Policy Institute cautions that it "is not a replacement for the minimum wage. . . (which) raises the wages of low-income workers in general, not just those below the official poverty line. Many families move in and out of poverty, and near-poor families are also beneficiaries of minimum-wage increases."
Besides, there's just one problem with the EITC: It's a federal tax program. Unless Congress and the White House get on the bandwagon, there's not much we here in New Mexico can do about it.
For more than 30 years, however, New Mexico has had a program called the Low Income Comprehensive Tax Rebate (LICTR), which works much like the federal EITC. Unlike the EITC, this state tax rebate is not an earned-income credit. Instead, it rebates part of the gross receipts tax to households with a modified gross income, including public assistance, below $22,000; more than 90 percent of New Mexicans living in poverty already file for these rebates. Much like the minimum wage, however, LICTR amounts haven't been increased since 1998.
A 2000 study by New Mexico Voices for Children—which also supports boosting the minimum wage—concludes that the most cost-effective tax-based strategy to alleviate child poverty would be to increase exemptions for dependent children while adding a rebate targeted at ages six and younger. This "two-tiered" approach would benefit more than 100,000 New Mexican families and completely lift more than 6,000 children out of poverty.
According to that 2000 report, such an expansion of the LICTR would cost taxpayers $29 million a year, although some $1.3 million of that would be recouped in gross receipts taxes on the additional spending it would make possible. That's a not-insignificant cost, but it would be more widely borne than the costs of a minimum-wage hike. It's about $33 for every tax return filed in New Mexico. The state could absorb the cost for more than four years just from what Gov. Richardson wants to spend on building a spaceport.
A related measure, to provide a 7.5 percent Working Families Tax Credit based on the federal EITC, was introduced in the last legislative session as part of the governor's tax package. Benefiting only those who don't already claim the LICTR, it would have cost $17.6 million annually and given qualifying families an average of $450 a year. The 30-day session ran out before the measure could pass, but Kay Monaco, executive director of New Mexico Voices for Children, says she hopes next year the governor will back another try with a 10 percent credit.
According to the State Online EITC Resource Center, more than 20 states already have state EITC programs. While the center mentions the LICTR, New Mexico is still listed as a "potential EITC state." The most effective such state EITC programs, according to the Center on Budget and Policy Priorities, are "refundable"—that is, they allow a refund check even for families whose credit exceeds their income-tax liability. Supplementing the federal EITC can reduce or eliminate the poverty gap for families who still remain poor, lessen the regressivity of state tax systems, and support welfare reform by boosting the incomes of families moving from welfare to work.
A 2003 report by the Institute on Taxation and Economic Policy adds, "Low- and middle-income families in New Mexico pay a considerably higher share of their income in state and local taxes than do the richest New Mexicans. . . . New Mexico families earning less than $13,000—the poorest fifth of New Mexico nonelderly taxpayers—pay 12.1 percent of their income in New Mexico state and local taxes, which is almost twice the rate the richest New Mexicans pay."
Nobody doubts that New Mexico has a serious poverty problem. As Voices for Children points out, we have the nation's highest child poverty rate. Poverty in New Mexico is more rural than in most states, the income distribution is more unequal, and those in poverty are more severely poor.
That makes it all the more important that however New Mexico addresses its poverty problems, we get it right. Is raising the minimum wage, either statewide or one municipality at a time, the best solution?
Paul J. Gessing of the free-market Rio Grande Foundation doesn't think so. "It's simply bad economic policy," he says, adding that the New Mexico economy would pay the price for exceeding the federal minimum wage: "The Founding Fathers were very intelligent people. They created a laboratory of states. If one state wants to adopt bad economic policy, that's their right. But jobs and dollars will then travel to other states."
"At some point, facts and reality count," says AFSCME's Carter Bundy. "Since the far right's been wrong every time during the last 70 years, why should we listen to them now? Maybe it's time to give the people who are trying to work their way out of poverty a chance to succeed."
As for Amy Carpenter, who's seen the issue from all sides and now even on-stage, she doesn't claim to have all the economic answers. She just thinks it's past time the working poor stopped getting nickel and dimed. "If I have to pay $15 for my breakfast, OK," she says. "I'd rather pay it up front than have the horrible situation we've got in this state, where we end up paying for it in so many other ways."
David A. Fryxell is editor of Desert Exposure.