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VOL. 122 | NO. 13 | Friday, January 19, 2007

The Real Story On Raising Minimum Wage

By Lindsay Jones

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Plot: Minimum wage worker struggles to make ends meet
Anytown, Tenn.
Single woman working 40 hours a week earning current federal minimum wage of $5.15 per hour (Women comprise 60 percent of low-wage workers in the United States, according to the Fairness Initiative on Low-Wage Work at www.lowwagework.org.)
Opening Scene:
It's a dark and stormy night. Jane wriggles out of her soaking wet store uniform.

A single bulb burns over the 40-year-old kitchen table she bought for $20 at a yard sale last summer.

She thinks about making a sandwich - peanut butter and jelly again - but is too tired to muster the energy. So, instead, she reaches for the pull-cord under the light and plunges her one-bedroom apartment into darkness.

She stumbles over to the worn-out couch in her tiny living room and collapses. Another day bites the dust.

If Jane were a real person, this is how her salary would break down, assuming she claimed no exemptions on her federal income taxes: $5.15 x 40 hours = $206 a week.

After withholdings, her net (after taxes) paycheck would work out to about $174 a week. Multiply that by roughly four weeks per month and Jane's monthly take-home pay would be $4 shy of $700.

If, by some miracle, rent for her one-bedroom apartment was less than $400 a month, she still would have groceries to buy, utilities to pay and gas to feed into her car. That's not counting clothes, phone service, insurance - medical, vehicular or otherwise - and all the tiny incidental expenses that peck away at everyone's paycheck.

Clearly, Jane would not be able to squeak by without some form of public assistance. Her roughly $9,050 annual income would be below the U.S. Department of Health and Human Services' $9,800 poverty threshold for a single wage-earner.

And what if Jane had a child or two without spousal support? Despair, pure and simple. A yawning chasm beneath her aching feet.

But, a ray of hope: Although the federal minimum wage has stagnated for 10 years at $5.15 an hour, 29 states - plus businesses all over the country - gradually have initiated their own increases. And, if given the chance by state legislators this year, Tennessee could join them.

"I think the lowest market wage is about $5.50 or $6 (an hour)," said David Ciscel, professor emeritus of economics at the University of Memphis. "A minimum wage is supposed to be a wage that pulls up that minimum market wage because that minimum market wage doesn't really allow a worker to take care of himself.

"Very few people are being paid $5.15 anymore. The worst of jobs start at close to $6."

That would be why a movement is afoot in the Democrat-controlled U.S. Congress to raise the federal minimum wage to $7.25 an hour over two years. If passed, the stair-step increase could go into effect nationwide as early as February.

Because Tennessee still doesn't have its own minimum wage law (along with Alabama, Louisiana, Mississippi and South Carolina), it might just go with the federal flow as it has in the past.

And that appears likely for two reasons: because state Republicans generally object to a statewide minimum wage higher than neighboring states and because an effort to institute a $6.15 baseline wage died in the state Senate 16-14 last year after passing the House 52-43.

"It used to be Republicans were in favor of the minimum wage, but over the last 20 years they've been voting against it," Ciscel said. "They tend to look at the costs instead of the benefits."

However, the proposed Tennessee Minimum Wage Act is in the process of being introduced into both the state House and Senate. Talk of a constitutional amendment instituting a statewide minimum wage also is making the rounds. But does either option have a snowball's chance on a hot Southern day? Probably not, Ciscel said.

The costs to which he was referring mainly fall under the heading of business expenditures - a factor that affects the legislature's many connections to businesses large and small.

The benefits are these: "(Raising the minimum wage) does two or three things," Ciscel said. "First of all, it starts to generate more income amongst low-wage workers, so the kinds of businesses that cater to low-wage workers ... will see a surge in spending and will hire more low-wage workers. Usually, you get a very modest increase in hiring, but you do see a surge in spending."

While some sources say a higher minimum wage causes businesses, especially small ones, to cut low-wage jobs by up to 41 percent - particularly in the restaurant industry - Ciscel pays that little heed.

Instead, he says another by-product of raising the minimum wage is an overall "ratchet effect" in salaries. As people who used to earn $5.50, $6.50 or $7.50 an hour are given a boost, those with slightly higher salaries - say, $9 an hour - get their own boost to keep them above the minimum. So they start spending accordingly.

What's more, the prices of what low-wage workers produce, in Ciscel's words, "go up a teeny bit" to make up for companies paying higher wages across the board.

"What's nice about the minimum wage is that if you own a hamburger joint and suddenly you have to pay everybody a dollar more an hour, you're not the only person that happens to," Ciscel said. "It's every hamburger joint in the city. ... It's a level playing field. ... You don't have to fear being driven out of business."

Robert Staub, founder and executive director of the Small Business Chamber's Memphis and Nashville chapters, concurred that most businesses - especially small ones - are less concerned about an increase, at least in the federal minimum wage, than their corporate counterparts.

"Really, it affects the large companies that have an hourly wage-based payroll," Staub said. "Once those go up, I can guarantee you that the salary wages go up as well. So this is not a small-business issue; this is a big-business issue."

The chamber's two Tennessee chapters have about 350 members between them, with some of the member businesses at 30 employees or fewer and others with up to 100. Since the chamber has no political affiliation and is not tied to any particular municipality, Staub says he is able to take a "true pulse" of members' concerns, and the minimum wage - federal or statewide - is not important to them right now.

"Most small-business owners pay more than minimum wage, anyway," he said. "It's really barely a ripple in the water as far as small-business owners go."

But without a decent hourly wage, most blue-collar workers have plenty to fear. And life shouldn't be such a fearsome thing for anyone - at any income level.

End of story.

Research analyst Kate Simone contributed to this piece.

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