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History and Background on the Minimum Wage

minimum wage laws in United StatesIncreases in the minimum wage are being considered at a variety of levels, from the federal to the city.

As part of the city’s consideration of an increase in the minimum wage, I’ll be occasionally sending out a series of short essays/blog posts to add depth and background to the ongoing discussion.

History & Background

Federal

The federal minimum wage was established in 1938, at 25 cents, and was limited to employees engaged in interstate commerce or the production of goods for interstate commerce. It has been $7.25 since 2009. It is not adjusted annually for inflation and there have been long periods with no increase. The longest gaps between increases were 9 years from 1981 to 1990, and just under 10 years from 1997 to 2007. As a result the purchasing power of the minimum wage has eroded over time, with inflation eating away at it.

For much of its existence, it was enough to keep a family of two above the poverty line. With the beginning of President Reagan’s administration, in the early 1980’s, that hasn’t been the case. And keep in mind that it was briefly enough to keep a family of 3 above the poverty line in 1968.

Recognizing the inadequacy of the federal minimum wage, President Obama proposed raising the national federal minimum wage to $9 early in 2013. Congressional Democrats have proposed raising it to $10.10.

States

As of January 1, 21 states and the District of Columbia have higher minimum wages than the federal level. Washington State’s minimum wage is the highest state minimum wage in the USA, at $9.32 for 2014. California has approved an increase that will raise their minimum wage to $10 in 2016.

Increases in Washington State’s minimum wage were also occasional since 1961, until voters approved Initiative 688 in 1998, which indexed the minimum wage to the cost of living beginning in 2000. Since then, the average increase has been 2.6%; it went up 1.4% in 2014 (and 0% in 2010, a down year). The longest gap between increases was 13 years, from 1976 to 1989.

Governor Inslee proposed raising the minimum wage earlier this week in his State of the State address. While he didn’t propose an exact number, he mentioned a potential increase in the range of $1.50 to $2.50, which would increase Washington’s minimum wage to from $9.32 to $10.82 or $11.82.

Local governments and living wages

Local governments started setting “living wages” and minimum wages in the early 1990s. A living wage generally applies to government employees and, at times, contractors, while minimum wage laws apply more broadly to private businesses. A number of cities on the east coast are restricted by state law from setting a minimum wage for all workers in their jurisdiction. Also, there is considerable variation in how local minimum wage ordinances are constructed. I’ll deal these differences with a subsequent blog post.

Questions, considerations

The Council approved funding for a study to examine several questions regarding increasing Seattle’s minimum wage; the scope of the study is currently being developed and should be completed within the next couple of weeks.

Below, I’ll explore a few of the numerous questions that have come up so far regarding the minimum wage.

For example, questions have come up on how a sudden large increase in the minimum wage would affect small businesses.  Other questions include how Seattle having a higher wage than adjacent jurisdictions would affect our job market and economic growth.

There are examples of large increases in the minimum wage. The federal minimum wage increased from $5.15 in 2006 to $7.25 in 2009, a total 41% increase in three phases. Earlier, it increased from $2.30 in 1977 to $3.35 in 1981, a 46% increase in four phases. At the state level, Washington’s minimum wage increased by 28% in 1968 from $1.25 to $1.60. These increases were for areas much larger than Seattle; for the 2009 increase, no increase had taken place for a decade.

Examples of comparisons across jurisdictions of disparities in the minimum wage exist, but are harder to find the greater the disparity. The clearest example is in Sea-Tac, which went from $9.19 in 2013 to $15 in 2014. However, this increase is for airport and hotel-related industries and transportation services (rental cars, shuttle services), not for all workers in Sea-Tac. Good data will not be available until the new rate has been in force for at least six months; in late December, a Superior Court judge ruled the airport portion can’t be enforced; the decision is under appeal.

The highest gap between the Washington State and federal minimum wage was in 2006, when the state wage was $7.63, and the federal wage was $5.15. Currently, except for Sea-Tac, there are no disparities among Washington cities on minimum wage, since they all conform to the State’s minimum wage.

Other relevant issues include:

  • What are the demographics of low-wage earners?
  • Which industries pay minimum wage, or the lowest wages?
  • What is the experience of other cities that have increased the minimum wage?
  • Industry-specific questions; how would increasing the minimum wage affect non-profits, and restaurants with tipped employees?
  • The impact on public services of higher wages; would fewer people need services?
  • The service sector today vs. the low-skill manufacturing sector in the previous generation; why are service wages lower?
  • Potential employment impacts of a large increase in the minimum wage—could it result in reduced employment, with negative impacts on less-educated/skilled persons, the young, and especially on persons of color?
  • What would the impact be of increased spending by consumers?
  • Would prices increase, and if so, what would the impact be?

In subsequent posts I’ll describe options for increasing the minimum wage, and what other cities have done.

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