TIME Money

Why Raising Minimum Wage Means Less Money in Your Pocket

Cash in pocket
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$15 per hour looks more like a way to shrink the government than an effective strategy to improve the financial position of low-income workers

Will you actually be richer when your pay is raised to $15 per hour?

Perhaps the question seems ludicrous. Of course you’re better off making $15 an hour than you were at $9 per hour, right? But the answer is, unfortunately, not as obvious as you might think. And the question itself—will workers getting a raise be better off?—has been missing from debates in cities from New York to Los Angeles over whether to establish $15 per hour minimum wages for some workers.

Instead, we’re seeing the same old arguments — from San Francisco, where voters must decide on a November ballot measure proposing a new $15 per hour wage floor, to Seattle, which will begin phasing in $15 per hour next year — over whether the minimum wage hurts business and jobs, or whether it boosts local economies by giving workers more money to spend. For the record, I think a higher minimum wage makes sense; $15 per hour isn’t much anymore in our most expensive major cities. But I’m troubled by our failure to consider the real-world impact of minimum-wage hikes on those who are supposed to benefit directly—the workers getting them.

It’s a hard question because of a hard fact. Many workers who get a boost in pay will see their gains offset by a reduction in the government assistance they are currently receiving.

Why? Eligibility for many public programs—and the amount of support people receive—is need-based. Whether we’re talking about tax credits, healthcare subsidies, affordable housing subsidies, or food stamps, those with lower incomes tend to get more in benefits. So a boost in your income means a corresponding reduction in benefits.

It is hard to generalize and measure the “cost” of someone’s raise to $15 per hour because each person’s situation is different. Program eligibility depends not only on incomes but also on factors such as whether you have children, the number of people you live with, where you live, and other household members’ income. (Having to do the complicated math around such benefits is another burden of being poor in this country.) But for the most part, the working poor face what can be thought of as high marginal taxes (north of 60 percent, in many cases) on every additional dollar they earn. For example, a recent Congressional Budget Office report found that a single parent with one child who makes between $5,000 and $20,000 a year gets only $15 of every additional $100 he makes.

Taken together, the income rules for various programs create cliffs that a big raise can push you off. (Such cliffs are also sometimes called “welfare traps,” and economists argue about whether they discourage work.) Eligibility for food stamps is based on two different tests to demonstrate that your household has a low income. For Section 8 housing, your household income cannot surpass 50 percent of your area’s median income. And the earned income tax credit, one of the most important sources of cash for low-income working families, phases out as income rises.

The Affordable Care Act demonstrates the phenomenon. This landmark piece of social legislation extended free or highly subsidized health insurance to millions of additional Americans. But it also, therefore, increases the loss of benefits to low-income workers after a raise. Take a single person in California making $10 per hour (or $20,000 a year) who gets a raise to $15 ($30,000 a year). According to Micah Weinberg, a healthcare policy advisor with the Bay Area Council, her health insurance premium under Obamacare would be capped at 5.1 percent of her income at $20,000—$1,021. But at her new income of $30,000 a year, the premium would be capped at 8.4 percent—or $2,511. So a higher minimum wage buys her a premium hike of $1,500 a year. And that doesn’t account for cost-sharing subsidies that are also tied to income, financial assistance that is lost entirely at $15 per hour.

Given this context, you might ask: What are leaders who campaign for higher minimum wages—from Los Angeles Mayor Eric Garcetti, who is working on a hike with his city council, to President Obama—doing to make sure that low-income workers don’t pay all these new costs of a higher minimum wage? Just about nothing.

Some advocates of a higher minimum wage, like the conservative Ron Unz, who sponsored an ill-fated minimum wage initiative in California, have made the case that by forcing businesses to pay people more, the government will save money on public programs. In this light, $15 per hour looks more like a way to shrink the government than an effective strategy to improve the financial position of low-income workers.

What to do? For their part, low-wage workers would be rational economic actors if they embraced the increase in the minimum wage by reducing their hours. That way, their incomes won’t go up enough to threaten benefits, and the wage increase could offer the benefit of more time—to spend with parents and kids, to enhance education, or to rest and get healthier. But it’s not easy to say no to more pay, even if it doesn’t leave you better off.

The better path would for our political leaders to go beyond popular public appeals for a higher minimum wage—and instead recalibrate and expand social programs so that low-wage workers get the full benefit of their raises. (Warren Buffett has suggested just such a course, via an expansion of the earned income tax credit). Of course, doing this would require two things that are in short supply: thoughtful political action and money.

But if American cities are going to raise the minimum wage, their goal should be to put more money in people’s pockets—and not just enact a policy that makes us feel good about ourselves.

Joe Mathews is California and innovation editor for Zocalo Public Square, for which he writes the Connecting California column.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME 2014 midterm elections

Drugs, Minimum Wage and Gambling: Inside 2014’s $1 Billion-Plus Ballot Initiatives

Demand for marijuana edibles is pushing several Colorado manufacturers to expand their facilities or move to larger quarters.
Steve Herin, Master Grower at Incredibles, works on repotting marijuana plants in the grow facility on Wednesday, August 13, 2014 in Denver, Colorado. Kent Nishimura—Denver Post via Getty Images

Bored with the midterms? There’s a lot of (expensive) drama on the ballot that doesn’t involve candidates

The 2014 elections are shaping up to be the most expensive in history, not for electoral campaigns, but for ballot initiatives. More than $1 billion has already been spent on them, according to the National Institute of Money in State Politics. And all that money could swing some key races.

Studies have shown controversial ballot initiatives can boost turnout as much as 8% in midterm elections, which typically see lower turnout than polling during presidential elections. Since Oregon first kicked off ballot initiatives in the early 1900’s, the practice has grown steadily — that is, until this year. Despite the increase in spending, 2014 actually has the least number of total initiatives — only 155 in 41 states, down from 188 in 2012—since 1988, reflecting state efforts to limit legislating by ballot.

Some of the millions already spent were intended to keep certain measures off the ballot. In Alaska, for example, oil and gas companies spent $170 per voter to block a bid to raise oil and gas taxes. In Colorado, energy companies also spent millions to keep fracking initiatives off the ticket. Also not making the cut this year: gay marriage and a push to break California into six states that, while strange, gained a lot of attention early on.

Perhaps the main issue on ballots nationwide this cycle is marijuana. Two states — Oregon and Alaska — plus the District of Columbia have initiatives to follow Colorado and Washington in legalizing recreational marijuana. But it’s a push to make Florida the 24th state to legalize medical marijuana that could impact an electoral race. Former Democratic Florida Gov. Charlie Crist’s bid to get his old gubernatorial seat back could see a boost from the measure, as left-leaning voters tend to support marijuana reform. Crist allies have already spent $4 million on the initiative with opponents, including incumbent Florida Gov. Republican Rick Scott and Sheldon Adelson, spending $2.5 million to defeat it thus far.

Another big issue is minimum wage, with four red states—Arkansas, Alaska, Nebraska and South Dakota—considering raising the minimum wage. Since 2002, all 10 ballot initiatives to raise state minimum wages have passed, and polling shows these initiatives look like they have good shots at approval as well. The pushes could help embattled Democratic incumbent Senators Mark Pryor in Arkansas and Mark Begich in Alaska.

Colorado Sen. Mark Udall, another Democratic incumbent fighting to keep his seat, is hoping that a personhood amendment —which defines life as beginning from the moment of conception — will help him stick around. His opponent, Rep. Cory Gardner, also opposes the amendment, but has voiced support for personhood initiatives in the past, creating an opening Udall has been exploiting. North Dakota has a similar initiative on the ballot, and Tennessee has a measure that would allow the state legislature to amend the state constitution to strip out abortion rights.

However, some of the most expensive ballot issues are not national ones. In California, two initiatives — one to increase the limit of non-economic malpractice damages from $250,000 to $1.1 million and another requiring state approval of changes in insurance rates — could see as much as $100 million in combined spending to sway voters. And Oregon and Colorado have controversial initiatives mandating the labeling of certain foods that contain genetically modified organisms. Last year, companies like Pepsi, Coca Cola and Monsanto spent $22 million defeating a similar push in Washington where proponents spent $9 million trying to pass it.

Oregon also has a controversial immigration initiative that would uphold a law allowing four-year driver’s licenses for those who cannot prove legal presence in the U.S. Another big-spending item is a spate of gambling initiatives in seven states expected to draw more than $100 million, including a hard-fought initiative in Massachusetts that would repeal a 2011 law allowing gambling resorts that would halt construction on sites.

A gun rights conundrum could happen in Washington, which looks poised to pass two initiatives that countermand one another. One would require universal background checks for all guns, and another forbids more extensive background checks than those required at the federal level. Officials say such a situation has never happened before, and no one is sure what would happen if both pass. Also on guns, Alabama is also looking to become the third state after Louisiana and Missouri to pass a “fundamental right to bear arms,” making it harder to restrict firearm access.

Alabama is also seeking to become the eighth state to forbid state’s recognition of laws violating its policies, including all foreign law. This measure is a follow up to a bill introduced by state Sen. Gerald Allen last year that specifically references Sharia law.

Missouri and Connecticut are looking to joining 33 other states and the District of Columbia in early voting.

And, finally, Maine is looking to ban bear baiting, trapping or the use of dogs to hunt bears. Long live Smokey.

MONEY Fast Food

WATCH: Fast Food Workers Plan Nationwide Protests for Thursday

Pushing for a $15-an-hour minimum wage and unionization, organizers prepare for restaurant sit-ins and other acts of civil disobedience.

TIME Business

The $15 Minimum Wage Is a Bellwether of the New Living Wage

Fast-Food Strikes in 50 U.S. Cities Seeking $15 Per Hour
Robert Wideman, a maintenance mechanic at McDonalds Corp., shines the shoes of a Ronald McDonald statue outside of a restaurant while protesting with fast-food workers and supporters organized by the Service Employees International Union (SEIU) in Los Angeles, California, U.S., on Thursday, Aug. 29, 2013. Bloomberg—Bloomberg via Getty Images

When $13 an hour isn't enough

A little less than two years ago, a group of courageous New York fast food workers went on strike, outlandishly insisting on a $15-an-hour wage and launching an unlikely David-versus-Goliath battle to raise pay for tens of millions of Americans in dead-end jobs.

Goliath is falling.

On Tuesday, word leaked that the mayor of Los Angeles will soon propose raising the city’s minimum wage to more than $13 in the next three years – an increase that would lift pay for hundreds of thousands of struggling Angelenos.

The plan neither meets the now iconic $15 demand of low-wage workers everywhere (though with cost-of-living adjustments built in, it would get there by 2023), nor guarantees the right of workers to freely form a union – a critical step in solidifying wage increases and improving other working conditions.

But pointing out these shortcomings only highlights just how far the nation has come. For who, on that cold November day two years ago, could have envisioned that a proposal to raise the minimum wage in America’s second largest city to more than $13, a nearly 50% increase over three years, would not only be taken seriously but would strike some as being too modest?

Who could have envisioned that under pressure from their left, moderate New York governor Andrew Cuomo would endorse a minimum wage of more than $13 for the nation’s largest city (New York), and Chicago’s dyed-in-the-wool pragmatist mayor Rahm Emanuel would throw his weight behind a $13 wage floor in the nation’s third largest city?

Who could have imagined that in 2014, business leaders in Seattle would actively support and help enact an unprecedented $15 minimum wage law, only to be one-upped by the San Francisco business community, which has agreed to let one of the country’s most liberal electorates vote on an even faster increase to $15 this November?

Who could have foreseen techs and janitors at Baltimore’s Johns Hopkins and teachers’ aides and cafeteria workers at schools in Los Angeles successfully bargaining contracts guaranteeing $15 an hour, or businesses like Michigan’s Moo Cluck Moo deciding to raise employees’ pay to $15 just on principle?

By themselves, any of these victories – along with the passage of more modest but still significant wage increases in cities like San Diego, Berkeley, Santa Fe and Washington and in states including Maryland, Michigan, Minnesota, Hawaii, Vermont, Connecticut and Massachusetts – could be dismissed as an aberration. Together, they represent the start of an inexorable march toward a new social compact, one in which America’s workers are no longer cast aside as dispensable factors of production whose output is to be maximized at the lowest possible cost.

Looking ahead, we can ask: Which state will be the first to set a $15 minimum wage? Which big fast-food company will be the first to guarantee a minimum hourly wage that is double the industry standard? When can we expect to see a living wage become a core labor standard guaranteed to all workers across the country?

For four decades, wages have flat-lined, even as worker productivity has continued to grow. Low-wage jobs now form the core of America’s economy, comprising seven of the ten occupations with the largest projected growth over the next decade. Now middle and working class people in this country are rightfully insisting on a larger share of the nation’s prosperity.

In years past, right-wing politicians and their corporate backers may have been able to subdue this agitation with references to “job creators” and patronizing warnings against “hurting those you want to help.” But Americans – low-wage workers, middle class families and even many business owners – have had enough.

A powerful movement is afoot to create a decent life and a truly sustainable economy for us all. Giants beware.

Arun Ivatury is a campaign strategist with the National Employment Law Project.

TIME Business

Labor Day: Raising the Minimum Wage Stiffs the Poor

Demonstrators take part in a protest to demand higher wages for fast-food workers outside McDonald's in Los Angeles on May 15, 2014.
Demonstrators take part in a protest to demand higher wages for fast-food workers outside McDonald's in Los Angeles on May 15, 2014. Lucy Nicholson—Reuters

There are at least three better ways to help low-income workers — and few ways that are worse

Another Labor Day, another bold plan to increase the minimum to help the working men and women of America!

On Monday, Los Angeles Mayor Eric Garcetti will announce a proposal to jack his city’s minimum wage from $9.00 all the way up to $13.25 over three years. That puts him ahead of President Obama, who has called for goosing the federal minimum wage from $7.25 to $10.10.

Increasing the minimum wage is typically sold as a way of aiding poor people — LA business magnate and philanthropist Eli Broad says Garcetti’s plan “would help lift people out of poverty.” But it’s actually a pretty rotten way to achieve that for a number of reasons.

For starters, minimum-wage workers represent a shrinking share of the U.S. workforce. According to the Bureau of Labor Statistics (BLS), the percentage of folks who earn the federal minimum wage or less (which is legal under certain circumstances) comes to just 4.3 percent of hourly employees and just 3 percent of all workers. That’s down from an early 1980s high of 15 percent of hourly workers, which is good news — even as it means minimum wage increases will reach fewer people.

What’s more, contrary to popular belief, minimum-wage workers are not clustered at the low end of the income spectrum. About 50 percent of all people earning the federal minimum wage live in households where total income is $40,000 or more. In fact, about 14 percent of minimum wage earners live in households that bring in six figures or more a year. When you raise the minimum wage, it goes to those folks too.

Also, most minimum-wage earners tend to be younger and are not the primary breadwinner in their households. So it’s not clear they’re the ones needing help. “Although workers under age 25 represented only about one-fifth of hourly paid workers,” says BLS, “they made up about half of those paid the federal minimum wage or less.” Unemployment rates are already substantially higher for younger workers — 20 percent for 16 to 19 year olds and 11.3 percent for 20 to 24 year olds, compared to just 5 percent for workers 25 years and older — and would almost certainly be made worse by raising the cost of their labor by government diktat. While a number of high-profile economists such as Paul Krugman have lately taken to arguing that minimum wage increases have no effect on employment, the matter is far from settled and basic economic logic suggests that increases in prices reduce demand, whether you’re talking about widgets or labor.

Finally, there’s no reason to believe that people making the minimum wage are stuck at the bottom end of the pay scale for very long. According to one study that looked at earning patterns between 1977 and 1997, about two-thirds of workers moved above the minimum wage within their first year on the job. Having a job, even one that pays poorly, starts workers on the road to increased earnings.

If we want to actually raise the standard of living for the working poor via government intervention, the best way to do it is via transfer payments — food stamps, housing subsidies, or even plain cash — that directly target individuals and families at or below the poverty line.

University of California sociologist Lane Kenworthy, a progressive who has called for a more generous social safety net, argues that virtually all increases in income for poor families in the U.S. and other wealthy countries since the late 1970s have been a function of “increases in net government transfers — transfers received minus taxes paid.” That’s partly because workers in poor households often have “psychological, cognitive, or physical conditions that limit their earnings capability” and partly because today’s “companies have more options for replacing workers, whether with machines or with low-cost laborers abroad.”

To be sure, arguing that you want to increase direct aid to poor families doesn’t give a politician the same sort of photo-op as standing with a bunch of union leaders on Labor Day and speechifying about the urgent need to make sure an honest day’s work is rewarded with a living wage.

But making just such a case could have the benefit of actually helping poor people in the here and now. Certainly a savvy politician could sell that to voters who know the value of hard work — and the limits of economic intervention.

 

MONEY Fast Food

WATCH: McDonald’s is Promising Even Faster Food

About 800 Florida McDonald's restaurants are guaranteeing a one-minute drive-thru experience or you'll get free food.

TIME poverty

Politicians Give Living on Minimum Wage a Whirl

Bloomberg New Energy Finance Summit
Ted Strickland, former Governor of Ohio Jin Lee—Bloomberg/Getty Images

Tim Ryan, Ted Strickland and Jan Schakowsky took part in #LiveTheWage challenge, and Illinois Governor Pat Quinn agreed to try it in the future

Former Governor of Ohio Ted Strickland said in Sunday op-ed that he tried and failed to live on the minimum wage last week as a part of the #LiveTheWage challenge.

“Washington is in a bubble that keeps our representatives away from the experiences of those they actually represent,” Strickland wrote in Politico Magazine. “We need to understand the challenges faced by Americans who are being left behind in our economy.”

He wasn’t the only politician trying to understand the setbacks faced by low-earning workers. U.S. representatives Tim Ryan (D-Ohio) and Jan Schakowsky (D-Ill.) also took part in the challenge, which asks participants to live on only $77 a week — the typical amount of money an employee relying on the current $7.25 minimum wage can put toward all their expenses, not counting utilities and rent.

Ryan and Schakowsky began the challenge last Thursday, which was the fifth anniversary of the last federal minimum wage increase, ABC News reports. Both reps support raising the minimum wage to $10.10 an hour.

“So far I have lost some weight, which is not bad for me, but must be tough for low wage workers all over the country,” tweeted Schakowsky. “#LiveTheWage just gives me a glimpse into the life of a low wage worker. Point is $7.25 isn’t enough to live on.”

At an event Sunday, Illinois Governor Pat Quinn agreed to Schakowsky’s request to that he, too, live on the minimum wage, in advance of a ballot measure in Illinois on Nov. 4 to raise its minimum wage to $10 in 2015, the Associated Press reports.

TIME Humor

Watch: Kristen Bell Plays a Minimum-Wage Mary Poppins

Feed the birds, y'all

In case you had any doubts about whether Kristen Bell is one of Hollywood’s most talented dames, check out this amazing Funny or Die video in which she plays a fed-up Mary Poppins who quits her job because her pay sucks. The best part is when she looks in the mirror and her reflection is a Republican. Also props to Funny or Die for finding the perfect kids to play Jane and Michael Banks.

Babysitters of the world, unite!

TIME Economy

New Data Show Faster Job Growth in States With Higher Minimum Wage

Labor Secretary Perez Discusses Raising Minimum Wage During Visit To DC Restaurant
U.S. Labor Secretary Thomas Perez, second left, and Representative George Miller (D-CA) visit a Sweetgreen restaurant to discuss minimum wage, June 16, 2014 at Dupont Circle in Washington, DC. Alex Wong—Getty Images

Findings could undermine the argument that raising the minimum wage hurts job growth

New data show that the 13 states that raised the minimum wage this year are adding jobs at a faster pace than those that did not.

State-by-state hiring data released Friday by the Labor Department reveal that in the 13 states that boosted minimum wages at the beginning of this year, the number of jobs grew an average of 0.85 percent from January to June. The average in the other 37 states was 0.61 percent, the Associated Press reports.

The findings could undermine the argument that raising the minimum wage hurts job growth, a view held by major conservative lobbies. The Congressional Budget Office reported earlier this year that a minimum wage of $10.10 could bring 900,000 people out of of poverty, but would cost 500,000 jobs nationwide.

“It raises serious questions about the claims that a raise in the minimum wage is a jobs disaster,” said John Schmitt, a senior economist at the liberal Center for Economic and Policy Research. The job data “isn’t definitive,” he added, but is “probably a reasonable first cut at what’s going on.”

President Barack Obama has supported raising the minimum wage, saying that it will help the economy and businesses.

Some economists said that data was inconclusive and that it’s too early to say whether minimum wage hikes hurt job growth. The rate of job growth was the highest in North Dakota, where the local oil and gas boom has spurred the economy but there has been no minimum wage increase. “It’s too early to tell,” said Stan Veuger, a scholar at the American Enterprise Institute. “These states are very different along all kinds of dimensions.”

[AP]

TIME Retail

IKEA Is Going to Raise Minimum Wages in All its U.S. Stores

Contractors work on construction of a new IKEA store in Miami, May 20, 2014.
Contractors work on construction of a new IKEA store in Miami, May 20, 2014. Christina Mendenhall—Bloomberg/Getty Images

IKEA will use MIT's Living Wage Calculator to calculate minimum earnings for staff, leading to an average 17% hike

IKEA, the world’s largest furniture retailer, plans to raise the minimum wage in all of its U.S. stores by using MIT’s Living Wage Calculator, which estimates the base pay needed to survive in a particular city – a move that could set a new standard expected for major retailers.

Huffington Post quotes Rob Olson, the chief financial officer of IKEA U.S., as saying that the average store minimum wage will increase by 17% to $10.76 per hour on Jan. 1. Employees at each of the 38 stores will have a different base salary depending on the cost of living in the city they’re in, ranging from $9-$13 per hour. Olson notes that the average minimum wage at U.S. stores will be $3.51 higher than the current federal minimum wage, which is $7.25 per hour. “It’s all centered around the Ikea vision, which is to create a better everyday life for the many people,” Olson told the Huffington Post.

The move is only the most recent illustration of divided stances on minimum wage reform. The heated national debate has been marked by protests waged by McDonald’s workers demanding higher pay. Meanwhile, Seattle voted to raise its minimum wage to $15 an hour in May — the highest minimum wage in the country. The International Franchise Association opposed the decision, calling it “unfair and discriminatory minimum wage plan,” according to the Washington Post. Barack Obama has been a proponent of higher minimum wages, reflected in a decision to hike the minimum wage for federal contractors up to $10.10—a move that he suggested should be adopted throughout the country.

Although other companies such as Gap Inc., have vowed to raise the base pay for stores nationwide, IKEA is the first major retailer to use a living wage calculator when setting salaries. Olson says that the new base pay salary is meant to be a selling point to recruit more talented employees, according to the Washington Post. While IKEA’s new minimum wage hike could sharpen the company’s image, it’s perhaps a greater sign to other companies of an impending trend in the workplace.

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