The Fight for $15 an Hour
In New York City, one of the country’s most expensive cities, thousands of workers, many of them in the food and hospitality industry, are coming to a crossroads. A state law that went into effect in January 2017 requires employers to phase in a series of pay hikes that will culminate with a $15 an hour minimum wage at the end of 2019, depending on the size of the businesses.
Economists have long debated the pros and cons of a higher minimum wage. Now New York is serving as a real-time, real-life experiment: a laboratory testing the effectiveness of the minimum wage and how it will affect individuals and businesses throughout the state. Arguably, this will play out more visibly in the food and hospitality industry than anywhere else in the city’s economy.
For many restaurants and small businesses in the city, the wage increase may hurt the bottom line, slow down hiring and prompt layoffs. Business owners also warn they may have to hike prices.
Some workers with grueling jobs and long hours already have seen small benefits from the modest increase. But many fast-food workers, bartenders,
The NYCity News Service investigates the impact of the minimum wage, positive and negative, on working New Yorkers—and the people who employ them. — Katie Warren
Why $15?The minimum wage debate, demystified
Worker at Chinatown's Eggloo, Choung woo Hyun, 21. (John Friia)
Current efforts to more than double the federal minimum wage to $15 per hour are bringing a new level of intensity to a decades-long debate: in the long term, is a higher minimum wage better for workers in low-paying jobs? For the businesses that hire them? For the economy in general?
A $15 an hour minimum wage will apply to all workers in New York City by the end of 2019, with wages in the rest of the state increasing more gradually. While New York’s minimum wage percolates above the federal baseline – and at a much faster pace than minimum wage hikes in other states – the arguments for and against the law cite economic theory, bottom-line results, ideology and, often, what seems to be common sense.
Advocates and opponents of the minimum wage reliably enter the debate from different ideological starting points. Many conservatives, interested in loosening the grip of government on the free market, tend to oppose raising the minimum wage. Some would like to abolish it altogether. Progressives, concerned with reducing income inequality, are more likely to support establishing and hiking the minimum wage.
These debates often occur in the abstract. But in New York today, the consequences of the new legislation are already unfolding as employers and employees grapple with the benefits and drawbacks of the increased minimum wage. Tens of thousands of families are being affected.
“What we have now launched on is the greatest economics test in a long time,” said Greg David, professor of business and economics at the City University of New York’s Graduate School of Journalism.
Political groups such as “Fight for $15,” a pro-$15 an hour advocacy group, have brought a new zeal to the minimum wage debate. But government-mandated wage floors – and the arguments that came to define each side – date back more than a century.
Massachusetts passed the first minimum wage in 1912, though it wasn’t exactly a “minimum wage” in the way the term is understood today. The law applied to women and children only. And rather than set a specific wage, Massachusetts merely created a committee to investigate workers’ objections to their low pay.
By the mid-1930s, other states began to introduce minimum wage legislation. In the wake of the Great Depression, Congress passed President Franklin D. Roosevelt’s National Industrial Recovery Act, which paved the way for the first federal minimum wage: The Fair Labor Standards Act of 1938. The first minimum wage under the Act was just 25 cents per hour, equal to $4.29 in today’s dollars.
Since 1938, the federal minimum wage has been increased by Congress 22 times, and was set at its current level of $7.25 per hour in 2009.
The New York state minimum wage increased three times between 2010 and 2015, to $9 an hour. In January 2016, New York City enacted a law to set in motion a series of annual hikes in the minimum wage. Later last year, the New York State Legislature passed statewide minimum wage reforms. The state, citing lower living costs and smaller profit margins for business owners outside the five boroughs, increased the minimum wage upstate at a slower rate than in New York City. In the regulations covering the city, the minimum wage increases at a more gradual rate for businesses with fewer than 11 employees.
“You have to raise the people on the bottom,” Gov. Andrew Cuomo said in January 2017. “And the best way to raise the people on the bottom is by raising the minimum wage.”
In Support of the Minimum Wage
In November 2012, fast-food workers in New York City walked out on their jobs to demand higher wages. What started with a few dozen protesters outside a single McDonald’s in Midtown grew to crowds of hundreds from fast-food restaurants around the city.
From these protests, merging under the banner “Fast Food Forward,” the call for a $15 minimum wage gained momentum.
By mid-2014, the protest movement had gone national, and had been re-consolidated under the slogan “Fight for $15,” a goal well beyond the $9.84 national median hourly wage for fast-food workers at the time.
Advocates for the minimum wage hike have offered different explanations for choosing $15 as the ideal number, rather than organizing around a higher or lower wage.
When New York City Mayor Bill de Blasio pushed through his proposal to raise the minimum wage in the city in January 2016, he emphasized that a higher wage would improve the quality of life for working families.
“It will mean families will be able to do so much more, to not have to make those tough choices, to be able to afford the basics in life,” de Blasio said in January 2016.
Others cited economic science behind $15 an hour, including Robert Reich, a progressive economist and former secretary of labor under President Clinton, who has argued that the combination of inflation and increased productivity justify a $15 an hour minimum wage.
In 1968, the federal minimum wage was $1.60 an hour. Adjusted for inflation, that wage would be more than $11 an hour in 2017. But Americans’ output per hour of work has more than doubled from 1968, which Reich says ought to be factored in to the minimum wage debate.
“Adjusted for both inflation and productivity gains, therefore, the minimum wage should be at least $15,” Reich said.
The Economic Policy Institute, a progressive think tank, estimated that upping the wage to $10.10 an hour would pump $22.1 billion into the economy over a three-year phase-in period. That could create 85,000 new jobs, the institute said.
“The idea of a minimum wage initially was established in order to ensure that whatever that minimum was, it would allow working people and their families to live at a minimally decent living standard,” said Robert Pollin, an economics professor at the University of Massachusetts-Amherst.
“The most basic thing is that it provides higher level of income for people that are playing by the rules,” he said. “It helps the worker spillover benefits to his or her family, it will also make them in general better workers that are more committed to their jobs, so it improves productivity and reduces turnover.”
Nineteen states, including New York, have enacted plans to phase in $15 an hour by 2024. Georgia and Wyoming are the only two states that have a state minimum wage that is lower than the mandated $7.25 an hour federal minimum wage. Right now, over 3.3 percent of Americans make equal to or less than the federal minimum wage.
Source: National Conference of State Legislatures
Pollin believes that the benefits for the average worker far outweigh any potential downsides. Companies are able to offset the costs of higher wages by raising prices and modestly reducing CEO pay. But the biggest benefits would play out on their own, with higher wages lowering turnover rates and absenteeism rates, as well as improving worker productivity.
“The way you can raise it is by is reducing turnover and absenteeism and that’s not insignificant,” he said. “Especially in the low-wage labor market where the jobs aren’t good. On average they stay for less than a year.”
He said that companies absorb those costs because they don’t want to pay higher wages and are willing to bear the costs of turnover because they still benefit from having to pay lower wages.
Changing the minimum wage can’t happen overnight, Pollin said, but it can be effective for lower-wage workers if done properly, over time. “If you have handled it carefully and give businesses plenty of time to make the adjustments, I don’t think there will be any significant cost to the economy,” he said.
Jeff Clemens, an assistant professor of economics at the University of California, San Diego, suggests that there may be better ways than the minimum wage to lift up the working poor, such as subsidizing worker training or investing more in education. But for this generation, he says, raising the minimum wage has become a symbol of polarized American politics.
“If you believe employers are squeezing more and more output from their payrolls without fair compensation, then a minimum wage hike would be for you,” he said.
Against the Minimum Wage
The circumstances surrounding the minimum wage debate are much different today than in 1912, when Massachusetts first took up the issue. But many of the same arguments are used. In Adkins v. Children’s Hospital in 1924, the U.S. Supreme Court ruled that minimum wage laws violated the freedom and autonomy of business owners and employers to operate their businesses and form contracts as they wished.
This precedent was effectively overturned in the 1937 Supreme Court case West Coast Hotel v. Parrish, when the court determined that minimum wage laws were a “reasonable” interference by the government into the freedom of two parties to enter a contract. The court said there’s no explicit right to form contracts in the Constitution, making such a freedom a “qualified, and not an absolute, right.” The judgment of the court in the 1937 case opened the door for future federal and state minimum wage laws.
This argument still resonates with conservatives and libertarians.
“I would never force an employer to pay a given wage to an employee, because that is a lack of consent on the part of the employer and violates basic principles of fairness, as well as freedom,” conservative commentator Ben Shapiro said during debates on the minimum wage in Seattle.
Many opponents cite economics as well as legal principles: they warn that if government sets the minimum wage too high, employers of minimum-wage workers – particularly employers who own small businesses – will have to spend more of their revenues in order to keep the same number of employees. To make up that lost revenue, employers say they will either raise the prices of their goods and services, fire workers, skimp on quality in food and materials, or cut costs in other ways.
“Minimum wages represent a cost to businesses, consumers, and other workers who may face fewer job opportunities,” economist David Neumark said in a letter to the Federal Reserve Bank of San Francisco.
Critics of the minimum wage, and critics of labor regulations generally, point out unintended consequences of government interventions in a free market. Following the theories of economists such as Adam Smith and David Ricardo, laissez-faire (“hands off”) advocates say that markets adhere to the laws of supply and demand when people have the freedom to pursue their own self-interest.
Markets, therefore, are basically self-regulating, some economists say: wages and prices are set not by the best guesses of a government bureaucrat, but rather by the amount that people are willing to pay for work or for a product or service.
The unintended consequences of minimum wage laws, opponents say, can have ripple effects.
“One thing the Fight for 15 movement is overlooking is that a higher minimum wage that is unaccompanied by increases in productivity is likely to result in some workers losing their jobs,” said Aparna Mathur, an economist at the conservative American Enterprise Institute.
Where We Are Now
More than 600 economists signed a letter to Congress in 2014 in support of raising the federal minimum wage to $10.10 by 2016. Three years later, the Bureau of Labor Statistics estimated that, as of May 2016, the average fast-food worker in this country still earned only $9.84 an hour. That number fell short not just of the suggestions of more than 600 economists, but also of the $15 an hour minimum wage now being phased in by a handful of states across the United States.
Congressional Democrats recently introduced a bill to raise the federal minimum wage. Proponents, including Sen. Bernie Sanders (I-Vermont), say higher minimum wages will have an overall positive impact on the economy, reduce poverty and income inequality, and lower government welfare spending.
Meanwhile, Fight for 15 vows to continue to push the cause. A strike was scheduled against McDonald’s in Chicago in May, with other protests looming in the months ahead.
— Kevin Breuninger and Alix Langone
Help Is Just A Call Away
When it comes to raising the minimum wage, legislation is one thing – compliance is another. That’s why New York’s Department of Labor has a minimum wage hotline dedicated to fielding calls from workers whose employers are stiffing them on new, state-mandated pay bumps.
The hotline, which has been widely advertised in New York City’s subway system, is part of a public awareness campaign aimed at spreading the word about the increased minimum wage, which took effect at the beginning of the year. Offered in more than a dozen languages, the hotline features information on how pay increases work in different parts of the state and for different businesses, and instructions for making complaints against employers.
The Department of Labor says that complaints have so far accounted for fewer than 5 percent of the roughly 3,000 calls the agency has received since the hotline launched five months ago – that amounts to about 150 calls, or an average of a little over one per day.
The Department of Labor says that the most common complaint is about employers failing to either deliver the prescribed bump in wages (which in New York City is either an additional $1.50 or $2 an hour, depending on the size of the business is), or failing to provide any bump at all.
“The Minimum Wage Hotline has been incredibly effective, holding employers accountable and ensuring that workers know their rights and are paid the proper wage,” says Josh Rosenfeld, press officer at the New York Department of Labor.
Workers can also call the hotline to inquire about labor standards, work hours and child labor regulations, or to find out about the status of an active investigation. The number is 1-888-469-7365. — Liz Tung