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Wisconsin's Minimum Wage Debate

Here we are again debating a variety of issues created from the statements made by the governor in his state of the state address. Over the next few months, his entire speech will be dissected, analyzed and responded to over and over again. The first issue I want to open is that of the minimum wage.

It is currently set at $7.25/hour and the Democrats in the state legislature have introduced proposals to raise it to $10.10/hour, state wide. No one thinks that the Republican majority will pass such a bill and it is permanently locked up in committees and subcommittees, much to the Democratic members' chagrin. Governor Walker briefly addressed the proposal in the state of the state and came firmly out against it. His stated reason for rejection was that it would be too costly and would suppress entry level positions and weaken continued job growth..


One of the sources I used to research this blog article was the CRS Report for Congress, Prepared for Members and Committees of Congress, titled Inflation and the Real Minimum Wage: A Fact Sheet, Craig K. Elwell, Specialist in Macroeconomic Policy, September 12, 2013. In this report he tracked the minimum wage from its inception in 1938 through September of 2013. His report outlined the following:

“Inflation and the Real Minimum Wage: A Fact Sheet

Congressional Research Service

1

he Fair Labor Standards Act (FLSA) of 1938 established the hourly minimum wage rate at

25 cents for covered workers.

1

Since then, it has been raised 22 separate times, in part to

keep up with rising prices. Most recently, in July 2009, it was increased to $7.25 an hour.

Because there have been some extended periods between these adjustments while inflation

generally has increased, the real value (purchasing power) of the minimum wage has decreased

substantially over time.

The Real Minimum Wage

The minimum wage is not indexed to the price level. It has been legislatively increased from time

to time to make up for the loss in its real value caused by inflation. In nominal (current dollar)

terms, the minimum wage has risen steadily from 25 cents to $7.25 an hour, where it has

remained since its effective date of July 2009. As the legislated adjustments to the minimum wage

standard have occurred at irregular intervals—sometimes increasing annually, other times not for

several years—while prices have generally risen each year, the purchasing power (real or constant

dollar value) of the minimum wage has varied considerably since its enactment.

For each time the minimum wage was changed, it represents nominal and real value. The inflation adjustments to the minimum wage are

made using the Consumer Price Index for Urban

Wage Earners and Clerical Workers (CPI-W). Real values of the minimum wage are expressed in

terms of July 2013 dollars, the latest month for which the index is available at the time of the fact

sheet’s preparation. Data on average hourly earninngs in nominal and constant (July 2013) dollars

are displayed for comparison purposes. The last column of the table shows levels of the CPI-W

since the inception of the federal minimum wage. The U.S. Bureau of Labor Statistics calculates

the earnings series

2

and the CPI-W.

3

The peak value of the minimum wage in real terms was reached in 1968. To equal the purchasing

power of the minimum wage in 1968 ($10.77), the current minimum wage’s real value ($7.90)

would have to increase by $2.87 (or 36%). Althoug

h the nominal value of the minimum wage was

increased by $5.65 (from $1.60 to $7.25) between 1968 and 2009, these legislated adjustments

did not enable the minimum wage to keep pace with the increase in consumer prices, so the real

minimum wage fell.

In addition to comparing the rate of increase in the minimum wage with prices, the level of the

minimum wage also has been compared with the

average hourly earnings of most workers in the

private nonfarm economy—which also peaked in 1968 at 54% (see footnote a in the table). In no

other year did the minimum wage exceed half of average hourly earnings. The legislated

adjustments that occurred after 1968 resulted in the minimum wage ranging from 34% to 47% of

average hourly earnings.

1

For the minimum wage’s legislative history and other information on the labor standard, see CRS Report R42713,

The

Fair Labor Standards Act (FLSA): An Overview

, by Gerald Mayer, Benjamin Collins, and David H. Bradley.

2

The earnings series are available at http://stats.bls.gov/ces/home.htm#tables.

3

The CPI is available at http://stats.bls.gov/cpi/data.htm.

From a CNN Money Report: http://economy.money.cnn.com/2013/02/14/minimum-wage-history/


“When President Franklin D. Roosevelt first created the minimum wage in 1938, it was 25 cents. Adjusted for inflation, that would be worth $4.07 today.

The minimum wage had its lowest buying power in 1948, when it was worth about $3.81 in today's dollars. It had its highest buying power in 1968, when it was worth about $10.56.

At $7.25 in 2012, our current minimum wage is in the middle of those two extremes.

President Obama's proposal to raise the minimum wage to $9 would put it back to a value last seen in the early 1980s.”



Again the relative and true worth of the minimum wage is declining.


It doesn't take a financial genius to figure out that the minimum wage has a long way to go before it becomes a contributor to increasing inflation and reigniting the 'wage price spiral'.


In practical terms, how does the current minimum wage impact employment numbers? I'm going to use a real world example.


I personally know someone who is earning around $25 K a year. They are currently limited to minimum wage jobs, but they work three of them to earn that annual figure. An average week for them is somewhere around 50 to 65 hours per week. They suffer increased illness; they are always stressed and they are barely making it. They will now be able to afford healthcare insurance through ACA. They were one of those people that were forced to use the emergency room on a too often basis.


I recently was talking with the individual about what impact a raise in minimum wage to $10.10/hour would have on them. The answer was simple; they could quit one of the three jobs they are currently doing. Let's take this to the next logical step.


This person is not unique, many are working under these same type of conditions. If enough of the currently employed at minimum wage drop one of their jobs, then it will, in fact, open enough positions for new workers to enter the workforce and stimulate the economy even more Thus, debunking the governor's basic supposition.


Also, by raising the minimum wage to $10.10/hour in Wisconsin, it would distribute more money to more people increasing the potential for more consumption. Another benefit would be to move more people away from government funded programs, thus providing tax payer relief.


Even though raising minimum wage would make fiscal and social justice sense, businesses that depend on the lower minimum wage to put to their bottom lines will fight it 'tooth and nail' claiming it will cost their businesses. My answer to that is that every business that employ minimum wage workers are in the same boat and no one business will gain an advantage over another. In addition, they may have to raise the price of their product or services, but that is a fiscal reality and the consumer will adjust. The consumer has adjusted just fine when the price of food, fuel and other consumables have risen. Therefore, there will be a minimum impact on current and future businesses. The final argument for raising the minimum wage has to do with retaining the people that we have educated.


If more people are working and staying in Wisconsin, then it will increase revenues, without having to increase social program funding. So the principle of 'work over handout' is reinforced and society benefits.




This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

CowDung January 27, 2014 at 09:34 AM
" Lyle Ruble January 26, 2014 at 10:55 PM @The Anti-Alinsky.....Boarding schools? What do you want to do, give them a head start for prison and institutionalization? " .................Lyle: I thought that in previous discussions, you were on board with the 'boarding school' reforms for MPS. The idea was to get the kids into a safe environment and outside of the negative influence of unstable households, not having enough to eat, absentee parenting, alcohol/drug abusing parents, and many of the other factors that have a negative effect on the educational achievements of many inner city kids. .............While it may sound a bit like the flawed 'Indian reeducation' program, I think that the idea does indeed have some merit.
Lyle Ruble January 27, 2014 at 10:58 AM
@CowDung......I did and still do support the exploration of looking at a voluntary boarding school program. One of the problems with the American Indian Boarding Schools was that they cut off the students from their cultures and families. Any boarding school system that is forced and attempts to make them in our own image is doing a disservice to these people. If not handled right it represents a type of paternalism that has no place in our society.
CowDung January 27, 2014 at 11:05 AM
Lyle: It sounds to me that you might not love Big Brother as much as you should... ;-)
Lyle Ruble January 27, 2014 at 11:33 AM
@J/B. Schmidt......I respect your response, but you are making broad brush statements that are not necessarily true. I would be very interested in your proof that the working poor have devalued the need for hard work. People working at or below the poverty level are probably working much harder than the average middle class worker. Most middle class worker are averaging, according to the bureau of labor statistics, slightly more than 40 hours/week. Working poor are often working far beyond the 40 hours and working two to three part time jobs. How can you say that they are devaluing the need for hard work. ........ I agree with you that we no longer educate for immediate employment. However, to discount those that get there college degrees as not being employable with useless degrees, I take umbrage with that statement. To again make a broad brush statement condemning someone's hard work and effort just because it doesn't immediately result in a high paying job does a great disservice to a large group of people. ......... Hourly wages or wealth is unfortunately used as a value of work in our society. Granted it doesn't predict happiness, but it does provide additional opportunities. .... Granted that no one deserves a job, but what they do deserve is the opportunity to work, without any unnecessary obstacles, if they are willing to work.
® Cody Walker January 27, 2014 at 11:55 AM
Lyle sez ►If we set the minimum wage ridiculously high, then everyone else will have their wages go up and the true purchasing power will remain the same just with a devalued dollar.◄ Which is what Bob articulated against the current ridiculously high jump proposed by the democrats. I would expect you to retract your blog as you proved yourself wrong again.
J. B. Schmidt January 27, 2014 at 12:35 PM
Lyle, I make all statements knowing full well that thousands of jobs across the country are being filled by illegal aliens willing to bust a$$ for a pay check. I learned a lesson from a former Pastor. When I asked him what he does to help the poor, he told me refuses to give them money. He will take them or their family to lunch, by them shoe or clothes, etc; but never will give them cash. What he found is that many people declined. Only those who understood the value of what was being given them took him up on his offer. ---- The majority of the working poor are there because of bad decisions somewhere along the line (including their parents). Giving them money does nothing to enforce position personal economic development, because they have already proven they can't do it themselves. The longer we reinforce the bad decisions by providing government handouts; the worse we make the situation. It has now become its own culture being down to the next generation. There are no warm fuzzies in demanding people take accountability; but it is the only way to become successful at life. ---- Lastly, we have taken great strides to restrict the ability of private entities from assisting the poor. Whether it be increased regulation of soup kitchens or food pantries, to what kind of food can be provided and even the demonizing of religion as a whole; the progressives have done their best to reduce the effectiveness of these groups. I recently saw a news story of man trying to make available foods that are past 'best by' date, yet still safe to eat. This is an excellent plan; but just wait till some liberal realize that people can be self sufficient and it will be regulated.
Randy1949 January 27, 2014 at 12:49 PM
@J.B. -- You assume two things. First is that a US citizen doesn't 'bust ass' in a minimum wage job. The other thing is that those illegal aliens are even getting the minimum wage. Thirdly, I would rather have $25 in cash to buy several days worth of food for my family than to be taken to one lunch. I would actually rather have neither -- I would like to have a job that paid me well enough for my 40 plus hours that I wouldn't have to accept charity at all.
CowDung January 27, 2014 at 12:58 PM
Randy: While you would certainly prefer to have $25 cash to buy food, I think that you can appreciate that the giver wants to be sure that the money is going to be used as intended (to buy food) rather than just a scam. It isn't uncommon policy for charitable organizations to give food/goods/gift cards instead of cash money.
Randy1949 January 27, 2014 at 01:03 PM
Yes, I understand that. But that attitude is horribly paternalistic. I'm sure it would give that pastor the warm fuzzies to take me to Applebee's (and it would be a lovely experience for me, albeit soured by a measure of shame) but I'd rather eat cornbread and beans for three days and have him trust me not to use it on drugs. This is the sort of generosity that makes the giver feel better than the receiver.
J. B. Schmidt January 27, 2014 at 01:09 PM
Randy, I 'would rather' like to drive a Mclaren, but if I were simply given a Mclaren would I appreciate it? (See Justin Beiber) 'Would rather' is my point exactly, the working poor are without options. By giving them options, hand outs and artificial pay increases they never learn the value of self improvement and therefore never improve economically. If you busted your a$$ at a minimum wage job, it would quickly becomes not a minimum wage job. The question was posted by Jay and never addressed, what are the stats how long a minimum wage job stay actually at minimum wage? ----- Thank our current leader for the destruction of full time jobs. We sped down the road of government dependence at a staggering pace under Obama and please explain what it has solved. Nothing.
CowDung January 27, 2014 at 01:18 PM
I suspect that if the receiver of the charity would respond by saying 'I'd rather have a bunch of corn meal and beans instead of going to Applebee's', I would think that most givers would take them to Pick n Save instead...
CowDung January 27, 2014 at 01:19 PM
...granted that the 'trust' factor still isn't there, but at least both parties are getting what they want.
Randy1949 January 27, 2014 at 01:20 PM
@J.B. -- 'Artificial' pay increases really reflect the rise in the cost of living. Social Security recipients get them, members of Congress get them, and with less justification. Given the downward pressure on all wages because of the recession and joblessness, you are naive to think that employers will reward 'hard work' with a raise if they don't have to. Most workers are 'busting their ass' just to keep the job at this point. To answer Jay's question -- it really isn't the minimum wage workers who get stuck at the low level, it's the workers at about one dollar above. One dollar above doesn't support a person either.
J. B. Schmidt January 27, 2014 at 02:25 PM
Pale Rider --- And he has done what since? He is continuing the the policies that drove into the recession.
J. B. Schmidt January 27, 2014 at 02:39 PM
Pale Rider- While I don't understand the details of the merger; how weak is the rest of the Milwaukee economy if that was its downfall?
J. B. Schmidt January 27, 2014 at 02:40 PM
Randy- Nothing you said justifies an increase in the government artificially raising wages. The government is paying congress and SS directly out of our taxes. An increase in the minimum wage effects businesses where, unlike government, they can't control their revenue. --- Your underlying assumption is that all business (since this increase will have an effect on all) is working to keep the working poor, the working poor. We need to address the downward pressure on wages, because that will still be there after the wage increase. Mostly likely, the mandated wage increase will cause further downward pressure as business now attempts to exist under the weight of further mandated employee costs and the causes of the already existing pressure.
Randy1949 January 27, 2014 at 02:51 PM
Some of them are too young to have lived through it.
J. B. Schmidt January 27, 2014 at 03:06 PM
Pale Rider- Does the insult make you feel better about your position? -- Again, how bad is the rest of economy if a single business failing destroys the economy? Domino effect on a beer merger is a simple excuse. Many companies have left Milwaukee, was that decision responsible for them as well. --- I am not defending the decision, I am questioning your logic and evidence regarding how it devastated the Milwaukee economy.
J. B. Schmidt January 27, 2014 at 04:24 PM
Pale Rider- The highest areas of unemployment are the inner city just north of that and that issue has nothing to do with Pabst. I am not making lite of the people that lost their jobs, but you trying to place the blame for the lack of economic develop on a single merger deal is like blaming the inner city problems on slavery. There comes a point where other factors are the continued cause and not simply the singular action. Milwaukee's leaders have made a folly of downtown development. Milwaukee has been anti-business in its approach to many policies for many years. ------ On side note, I am not a fan of the government blocking mergers and their nearly fanatic war on anything that could resembles a monopoly. Also, while I might long for some of Reagan's policies, no man is perfect. --- The failure of the merger was based on an agreement that Heileman's had with the Justice Department made in 1973 and not the 'simply' a decision made by the Reagan administration. I am not making this point to defend Reagan (as I think it was still wrong), but to prove my larger point that picking one moment in time as the cause for economic distress is difficult.
Bob McBride January 27, 2014 at 04:43 PM
As someone who was involved in a business right next to the Pabst complex, I can attest to the fact that the City of Milwaukee did very little to keep those which remained in that area there (and there were several significant manufacturers and distributers in that area). Norquist was mayor at the time we moved and we constantly pestered his office for assistance in finding an area within the city. For two years we attempted to work with them. Only when the announcement was made that we were moving to Oconomowoc did they show any interest and by that time it was too late. Shortly after we left, Ambrosia pulled out of the area, along with the remaining distributers, a couple of printing and finishing operations and some others. In total, several hundred jobs, just in that area, were lost, thanks to a Norquiest administration that had no interest in the kinds of jobs our companies provided. Most were not minimum wage, some (like those in our shop) were union. If you want to point fingers at politicians who should have understood what was going on at the time, and didn't, you can point them directly at him.
Lyle Ruble January 28, 2014 at 08:08 AM
@Pale Rider.....I'm still here and I'm fine. Thanks for the concern. Sometimes when enough people get engaged in a topic I like to sit back and follow as an observer thinking about the development of arguments.
Bob McBride January 28, 2014 at 09:11 AM
Looks like Obama is planning on raising, via executive order, the minimum wage for federal contracts to $10.10/hour. TMJ was reporting it effected 2MM existing workers. Other reports state it's effective only on new and certain renewed contracts.
Bob McBride January 28, 2014 at 09:12 AM
Yeah, the reporting is inconsistent. I changed my post based on looking at some other sources.
Randy1949 January 28, 2014 at 05:24 PM
"Port Randy was the only speaking out for the left so I felt the need to jump over onto that side." Oh, that was the reason you started arguing from the left. I was tempted to ask if you had maybe hit your head.
Randy1949 January 28, 2014 at 05:28 PM
Well enough to fool me. LOL
The Anti-Alinsky February 01, 2014 at 11:01 AM
It's raise time at work, and we got on the discussion of raising "minimum wage". My boss made a great point that should explain why raising the "minimum" wage would simply be another redistribution of wealth, but amongst the middle class, not the "1%ers". -------------------------------------------------------------------------------- We are a service oriented business that relies on skilled labor to perform the job. It in not a skill that is learned in a class room, but on the job. Whenever we go out on a job site we have a mix of new and experienced people, the new ones are primarily there to learn the job and gain experience, and the veterans are there to get the job done. Our pay range is currently from $8.50 to $25.00/hr. IF the "minimum" wage is raised to $10.10, that range would have to be adjusted from $11.00 to $21.50. So it would be the long-time experienced people at the top that would be most affected. AND, the criteria for pay raises would be stricter, so we would no longer err in favor of the employee, they would have to wait for the next cycle to get their increase.
Bob McBride February 01, 2014 at 11:10 AM
...and then, naturally, the response from the other side (which seems to think that the minimum wage differential will and should be made up by taking a portion of the "obscene profits" companies are making) would be that your boss is greedy and taking it out on his employees.
® Cody Walker February 01, 2014 at 12:14 PM
3 time loser Tom Barrett's Milwaukee is pushing for a $11+ min wage in the city. Cause that won't push business and jobs further into the successful white conservative suburbs. Liberalism is a cancer on the free market.
Bob McBride February 01, 2014 at 01:15 PM
Jesus...yeah, that'll help for sure. I honestly don't think there's anyone in city government who has a clue as to how the economy works.
® Cody Walker February 01, 2014 at 04:57 PM
They are all lifers on the public dole, they are unable to hold real jobs. Clarke and Donovan are the only ones that know how the private sector works.

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