Bloomberg News

States Moving Beyond U.S. Minimum Wage as Congress Stalls

November 12, 2013

Fast Food Strikes

Wal-Mart Stores Inc., the world’s largest retailer, and McDonald’s Corp., the world’s largest restaurant chain, are among the biggest employers in industries that rely on low-wage employees, according to the National Employment Law project. Photographer: Patrick T. Fallon/Bloomberg

President Barack Obama is pushing to raise the U.S. minimum wage higher than $7.25 an hour -- the rate it’s been for four years.

Half of the U.S. population won’t have to wait: They live in places where the bottom rate is already higher than that.

Twenty-one states and Washington, D.C., have raised the lowest legal hourly wage above the rate set by Congress, with New Jersey voters joining the list last week and campaigns under way to do the same in at least five other states.

It marks a shift of power to state and local officials, who have seized control from a deadlocked Congress that’s under pressure not to raise costs from the U.S. Chamber of Commerce and National Restaurant Association, whose members include Yum! Brands Inc (YUM:US)., the operator of the Taco Bell and Kentucky Fried Chicken chains.

“It would be best if you could just raise the minimum wage in Congress and in one fell swoop lift the income of millions of low-paid workers,” said Dean Baker, the co-director of the Center for Economic and Policy Research, a Washington-based group that tracks inequality and poverty issues. “But if that avenue is blocked -- and it appears to be -- it only makes sense for those looking to increase it to turn to the state and local level.”

The changes are pushing up costs for retailers, fast-food chains and other service-industry businesses that say higher wages cut into hiring, profits and expansion. Congress hasn’t passed an increase in the minimum wage -- which was first set at 25 cents in 1938 -- since 2007, when it approved an increase that brought the level to $7.25 an hour by 2009.

Red Robin

For Red Robin Gourmet Burgers Inc (RRGB:US)., a Greenwood Village, Colorado-based chain with more than 350 restaurants, rising labor costs are “expected to be more meaningful in the next couple of years,” because of California, which is set to increase its wage by $1 to $9 in mid-2014, and add another $1 in 2016, said Stuart Brown, the chief financial officer, in a Nov. 5 conference call with investors.

Wal-Mart Stores Inc (WMT:US)., the world’s largest retailer, and McDonald’s Corp. (MCD:US), the world’s largest restaurant chain, are among the biggest employers in industries that rely on low-wage employees, according to the National Employment Law project, a New York-based group that advocates for higher minimum pay.

Kory Lundberg, a spokesman for Bentonville, Arkansas-based Wal-Mart, declined to comment on the minimum wage. Louisville, Kentucky-based Yum! and Oak Brook, Illinois-based McDonald’s didn’t respond to requests for comment left with their public relations departments.

Democratic Support

Senate Democrats and Obama favor raising the minimum wage to $10.10, which would give the hourly wage the earning power provided by the minimum salary in the 1960s, accounting for inflation. That would push it above every state’s minimum wage - - with the highest in Washington set to rise to $9.32 next year -- though Democrats have said it’s unlikely to be approved by the Republican-controlled House.

Last year, about 3.6 million U.S. workers, half under age 25, were paid the federal minimum wage, or less, due to exemptions in the law.

About 76 percent of Americans said they would support raising the minimum to $9 an hour in a hypothetical national referendum, according to a Gallup poll conducted Nov. 5-6. The survey’s margin of error is plus or minus 4 percentage points.

Businesses in New Jersey tried unsuccessfully to defeat a ballot measure on Nov. 5 that imposed an $8.25 minimum wage, which will increase annually based on inflation.

Christie Veto

The legislature, controlled by Democrats, approved a wage increase, saying it was needed to help working-class residents. Republican Governor Chris Christie, who is frequently mentioned as a 2016 presidential candidate, vetoed the measure in January. He argued for a slower increase that he said would put less of a squeeze on businesses, and he opposed a cost of living increase. The following month, the legislature approved placing it directly before voters.

The step turned New Jersey into a battleground for labor unions and businesses.

Last week’s vote to increase the wage won support from Tayzia Treadwell, 20, a single mother from Newark who works as a security guard. She said at a Nov. 6 news conference in Trenton called by supporters of the increase that she earns “near” the minimum wage.

Baby Snack

“Believe it or not, this extra dollar will help,” she said. “It will mean so much of a difference because of that cry, that crying, because you don’t have even an extra 50 cents to get the baby a snack when you’re picking them up from daycare. Well you have it now.”

Jim Blake, the chief financial officer of Morey’s Piers, a seaside amusement park operator in Wildwood, New Jersey, that employs 2,000 people during the peak season, said he plans to cut workers’ hours or hire fewer during the next tourist season. He said he has little ability to raise prices to pass on the costs.

“It hurts the very people they’re intending to help,” Blake said.

Opponents argue that higher minimum wages increase unemployment by forcing companies to cut workers.

“On the surface, it sounds like a good policy,” said Holly Wade, senior policy analyst for the Washington-based National Federation of Independent Businesses, which represents about 350,000 businesses. “Unfortunately, it doesn’t do what it’s supposed to do. It decreases the number of entry-level jobs.”

Hiring Impact

How much of an impact it has on hiring is a subject of debate among economists, and some businesses could benefit from consumers with more free money to spend.

A study of local wage changes led by Arindrajit Dube, an economist at the University of Massachusetts, Amherst found no detectable losses in employment from 1990 through 2006. David Neumark, an economist with the University of California at Irvine, argued in 2006 that most research has found that higher minimum pay does have an impact on the employment of low-wage workers, though it’s not always significant.

In many places, public officials are less concerned about the toll on business than they were during the immediate aftermath of the 18-month recession that ended in 2009, the last time the national minimum wage increased, said Jack Temple, a policy analyst with the National Employment Law Project in Washington.

‘Job Killer’

In some communities, the arguments of business have prevailed. After the Washington, D.C., City Council this year passed legislation to raise the rate, Mayor Vincent Gray vetoed the bill. Wal-Mart (WMT:US) lobbied against the measure, which would have forced it and other large retailers to pay employees at least 50 percent more than the local minimum wage. The company threatened to halt construction of planned stores if the measure was approved.

“The bill is a job killer, because nearly every large retailer now considering opening a store in the District has indicated that they will not come here or expand here if this bill becomes law,”Gray said as he vetoed the measure.

New Jersey was was the fifth state this year to push through an increase, following New York, California, Rhode Island and Connecticut.

In New York, the minimum wage will rise 75 cents to $8 on Dec. 31 before phasing up to $9 in 2015. In Rhode Island, it will rise by 25 cents to $8 in January, while Connecticut’s will climb 45 cents to $8.70. Ten other states have minimum wages that adjust each year for inflation, according to the U.S. Labor Department.

City Wages

Some cities have imposed minimums that go beyond state wages. In California, San Francisco and San Jose have their own wages, as do the New Mexico cities of Santa Fe and Albuquerque. More than 120 local governments have also passed so-called living wage laws, requiring higher pay at businesses that receive tax breaks or government contracts.

The Nov. 5 ballot in SeaTac, Washington, a city of 27,000, included a union-backed measure to increase the minimum pay at the airport and surrounding areas to $15 an hour. The results have yet to be finalized.

In New York, Mayor-elect Bill de Blasio, a Democrat who made income inequality a centerpiece of his campaign, has said he intends to lobby lawmakers in Albany to let the city set a higher minimum wage than the state. In Seattle, Mayor-elect Ed Murray also said he would support a $15 minimum wage in his city -- a rate 63 percent higher than the state’s.

More States

“Seattle may be the first big city to get there,” said David Rolf, international vice president of the Service Employees International Union, which represents 2.1 million workers. “But I don’t think it will be the last.”

In Maryland, where the state minimum is the same as the federal, Democratic Governor Martin O’Malley last week called for the state to push its minimum wage above the U.S. level.

South Dakota Democrats also have collected signatures to place an increase to the minimum wage on the ballot in November, and campaigns are under way in Idaho, Minnesota and Hawaii to lift the state rate above $7.25, according to the National Employment Law Project. Advocates are also pressing for increases in Massachusetts, Alaska and Illinois, where it’s already higher.

“Congress is paralyzed when it comes to minimum wage,” said Gary Chaison, a labor law professor at Clark University in Worcester, Massachusetts. “It’s become an issue that can be worked though on a state wide level.”

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net; Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net; Jon Morgan at jmorgan97@bloomberg.net


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Companies Mentioned

  • YUM
    (Yum! Brands Inc)
    • $74.04 USD
    • 0.20
    • 0.27%
  • RRGB
    (Red Robin Gourmet Burgers Inc)
    • $65.74 USD
    • 0.46
    • 0.7%
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