Rhode Island Needs a Living Wage

 

The Current System is Broken            

Our economy is radically unfair. In Rhode Island, as well as the rest of the country, inflation vastly outpaces wage growth for all but the very richest Americans. This trend has endured for decades. In fact, after adjusting for inflation, most Americans have seen no significant wage increase since the early 1970s.[1] This problem is especially acute for those in the lowest income bracket. If the minimum wage had merely kept pace with inflation over the last fifty years, it would be approximately $19 per hour.[2] Our state falls far short of this. The minimum wage in Rhode Island is only $10.50 per hour.[3] And tipped employees are treated even more unfairly. Rhode Island’s “tip credit” system allows employers to deduct the money that their employees receive in tips from their paychecks, effectively confiscating much of the money that tipped employees like waiters and waitresses have rightfully earned.[4]

This causes immense suffering to tens of thousands of our state’s residents. Fully 12.9% of Rhode Island’s population live below the poverty line, in large part because a minimum wage job in our state is simply not enough to escape poverty.[5] People working minimum wage jobs are unable to afford basic necessities like food. Approximately 11% of Rhode Island households suffer from chronic food insecurity.[6] Housing is also out of reach for minimum wage earners. A Rhode Island resident earning minimum wage has to work sixty-six hours per week to afford the fair market value of a modest, one-bedroom apartment, and they have to work seventy-nine hours per week to afford a two-bedroom apartment.[7]

Justice for Workers

This is unacceptable. All candidates in the Rhode Island Political Cooperative will fight to increase the minimum wage to at least $15 per hour. A full-time, year-round employee with this salary earns $31,200 annually before taxes.[8] Additionally, we will ensure that tipped employees get treated fairly. This means completely eliminating the separate, lower minimum wage applied to tipped employees, and abolishing the unjust “tip credit” system that permits employers to deduct money from their employees’ paychecks. Finally, we must ensure that the minimum wage automatically rises with inflation, so that a minimum wage employee’s purchasing power does not deteriorate over time.

 

Raising the Minimum Wage Improves the Economy

Research consistently indicates that increasing the minimum wage benefits the economy. Most significantly, raising the minimum wage can help reduce what economists refer to as the “deficient aggregate demand problem,” a technical term that refers to the fact that our economy routinely produces more goods and services than people can afford to buy. Raising the minimum wage helps to address this problem by increasing the purchasing power of low-income workers. Because they lack substantial savings to draw on, these individuals quickly use the additional money that they receive from a minimum wage increase, prompting consumer spending growth, and increasing sales and profits for local businesses.[9] Conversely, because the super-rich can already afford everything they want to buy, they are unlikely to actually spend the money that they receive from a pay raise. Instead, they are more likely to simply transfer the additional funds to out-of-state bank accounts, where it contributes virtually nothing to Rhode Island’s economy, worsening the aggregate demand problem. In effect, raising the minimum wage redistributes money towards the working class, the people who most reliably spend their earnings on in-state goods and services, stimulating our local economy.

The super-rich regularly insist that raising the minimum wage will harm small businesses, and may even force them to fire some of their employees. The empirical evidence does not support this claim. A close look at the effects of state-level minimum wage increases since 1979 reveals no overall change in the level of employment for those states.[10] This finding has been replicated again[11] and again[12] and again,[13] including at the federal and municipal levels. In fact, researchers often find that raising the minimum wage tends to increase employment, especially in low-wage industries that are most substantially affected.[14]

Economists typically cite two main reasons why increasing the minimum wage does not reduce employment. First, demand for labor is relatively inelastic, which means that it is fairly unresponsive to changes in price.[15] This is not surprising because the typical employee produces far more profit for their employer than the cost of complying with the wage hike. Demand for labor is especially inelastic right now, because the minimum wage remains so low that many firms can systematically underpay their workers, even if their businesses are extremely profitable.[16] Essentially, this means that employers would make more money by retaining their employees after a minimum wage increase than they would by firing those employees and reducing their sales.

Second, economists have found that increasing the minimum wage tends to reduce the costs associated with employment turnover. Filling job vacancies is an expensive, time-consuming, and labor-intensive task which is particularly burdensome for small businesses. Minimum wage jobs have unusually high turnover rates. This increases what economists refer to as “friction” within the low-income labor market, a technical term that describes the time, money, and effort that prospective employers and prospective employees must invest to locate one another.[17] A high-friction job market is costly and inefficient, harming both workers and employers. Raising the minimum wage reduces turnover rates in the low-wage labor market by encouraging employees to stay at their current jobs, reducing the level of friction. This allows workers to enjoy greater job stability and allows businesses to pocket the money that they would otherwise spend on continuously filling new vacancies.[18]

Raising the Minimum Wage Improves Public Health

Researchers have found that raising the minimum wage allows low-income individuals to see their doctor more frequently, reducing the likelihood that their medical needs go unmet.[19] This saves lives. By increasing access to healthcare, raising the minimum wage directly reduces the incidence of premature deaths, particularly involving diseases (like diabetes) that are more prevalent among low-income communities.[20] Similarly, studies have found that raising the minimum wage consistently increases life expectancy.[21]

The benefits do not stop there. Increasing the minimum wage improves the health and wellbeing of children. In general, a $1 increase in the minimum wage tends to reduce the incidence of child neglect by 9.6%, with the benefits largely concentrated among children below the age of twelve.[22] Similarly, a $1 increase in the minimum wage has been found to reduce adolescent birth rates by approximately 2%.[23] Studies also indicate that raising the minimum wage improves mental health.[24] This last point is particularly important in Rhode Island which has the single highest rate of depression—6.4%—out of every state in the entire country.[25]

Raising the Minimum Wage Promotes Racial Justice

The median level of wealth for white families is $171,000.[26] For black families, it is $17,600.[27] For Hispanic or Latinx families, it is $20,700.[28] The racial wealth gap is exacerbated by systemic disparities in income.[29] Decisions regarding whom to hire, train, and promote reflect enduring patterns of racial discrimination, creating a system which forces nonwhite individuals into minimum wage jobs far more often than their white counterparts.[30] Approximately 42% of all workers earn less than $15 per hour, but this number is over 50% among African American workers and nearly 60% among Hispanic or Latinx workers.[31] Because nonwhite individuals disproportionately hold minimum wage jobs, raising the minimum wage would reduce the racial disparity in income which would in turn reduce the racial disparity in wealth.[32] Increasing the minimum wage is a critical component of any serious project to build a fair and racially-inclusive state.

 

Raising the Minimum Wage Would Narrow the Gender Income Gap

In Rhode Island, women are paid only eighty-four cents for every dollar paid to men.[33] This means that there is an annual wage gap of $9,037 between men and women in our state.[34] This is the result of enduring patterns of discrimination in hiring, training, and promotion which create a system that routinely forces women into low-wage jobs. Women comprise less than half of the overall workforce, but they represent 54.7% of workers earning less than $15 per hour.[35] This is one important reason why the poverty rate is consistently higher among women.[36] It is also why states that have raised their minimum wage have lower gender disparities in income. The gender pay gap is, on average, almost 25% wider in the 21 states that have not raised the minimum wage above the federal level.[37] Rhode Island has a lot more work to do to reduce its gender pay gap. Raising the minimum wage to $15 per hour would be a very good start.

 

Citations

[1] Marshall Auerback, “Why Raising the Minimum Wage Makes Economic Sense” (Apr. 2013), available at

https://www.ineteconomics.org/perspectives/blog/why-raising-the-minimum-wage-makes-economic-sense.

[2] Michelle Chen, “No, Seattle’s $15 Minimum Wage Is Not Hurting Workers” (Jun. 2017), available at https://www.thenation.com/article/no-seattles-15-minimum-wage-is-not-hurting-workers/.

[3] This information is posted on the website of the Rhode Island Department of Labor and Training, Workforce Regulation and Safety, available at http://www.dlt.ri.gov/ls/minwage.htm.

[4] Although employers are required to ensure that tipped employees get paid at least $10.50 per hour, they are also permitted to deduct what is known as a “tip credit”—up to $6.61 per hour—from their wages. In effect, this allows employers to confiscate the first $6.61 that an employee receives in tips every hour. While the employee still receives minimum wage, the current laws deprive them of much of the additional income that they should receive from tips. More information regarding how the tipped minimum wage works in Rhode Island is available at https://www.minimum-wage.org/rhode-island/tipped-employee-minimum-wage.

[5] This information was compiled by the US Census Bureau, available at https://www.census.gov/quickfacts/fact/table/RI/IPE120218.

[6] Alisha Coleman-Jensen, Matthew Rabbitt, Christian Gregory, and Anita Singh, “Household Food Security in the United States in 2018” (Sept. 2019), p. 23, available at https://www.ers.usda.gov/webdocs/publications/94849/err-270.pdf?v=963.1.

[7] National Low Income Housing Coalition, “Out of Reach 2019: Rhode Island,” available at https://reports.nlihc.org/oor/rhode-island#. The information compiled by NLIHC about Rhode Island is also available at https://reports.nlihc.org/sites/default/files/oor/files/reports/state/RI.pdf.

[8] Irene Tung, Yannet Lathrop, and Paul Sonn, “The Growing Movement for $15” (Nov. 2015), available at https://www.nelp.org/wp-content/uploads/Growing-Movement-for-15-Dollars.pdf.

[9] John Schmitt, “Why Does the Minimum Wage Have No Discernible Effect on Employment?” (Feb. 2013), p. 20, available at http://cepr.net/documents/publications/min-wage-2013-02.pdf.

[10] Doruk Cengiz, Arindrajit Dube, Attila Lindner, Ben Zipperer, “The Effect of Minimum Wages on the Total Number of Jobs: Evidence from the United States Using a Bunching Estimator” (Apr. 2017), available at https://www.sole-jole.org/17722.pdf.

[11] John Schmitt, “Why Does the Minimum Wage Have No Discernible Effect on Employment?” (Feb. 2013), p. 20, available at http://cepr.net/documents/publications/min-wage-2013-02.pdf.

[12] Anna Godøy and Michael Reich, “Minimum Wage Effects in Low-Wage Areas” (July 2019), available at http://irle.berkeley.edu/files/2019/07/Minimum-Wage-Effects-in-Low-Wage-Areas.pdf.

[13] Michael Reich, Sylvia Allegretto, and Claire Montialoux, “The Employment Effects of a $15 Minimum Wage in the U.S. and in Mississippi: A Simulation Approach” (Mar. 2019), available at https://irle.berkeley.edu/files/2019/02/The-Employment-Effects-of-a-15-Minimum-Wage-in-the-US-and-in-Mississippi.pdf.

[14] Paul K. Sonn and Yannet M. Lathrop, “Raise Wages, Kill Jobs? Seven Decades of Historical Data Find No Correlation Between Minimum Wage Increases and Employment Levels” (May 2016), available at https://s27147.pcdn.co/wp-content/uploads/NELP-Data-Brief-Raise-Wages-Kill-Jobs-No-Correlation.pdf.

[15] Evan Totty, “The Effect of Minimum Wages on Employment: A Factor Model Approach,” (Jul. 2017), available at https://onlinelibrary.wiley.com/doi/abs/10.1111/ecin.12472.

[16] José Azar, Emiliano Huet-Vaughn, Ioana Marinescu, Bledi Taska, and Till Von Wachter, “Minimum Wage Employment Effects and Labor Market Concentration,” (Jul. 2019), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3416016.

[17] Arindrajit Dube, T. William Lester, Michael Reich, “Do Frictions Matter in the Labor Market? Accessions, Separations and Minimum Wage Effects,” (Jun. 2011), available at http://ftp.iza.org/dp5811.pdf.

[18] John Schmitt, “Why Does the Minimum Wage Have No Discernible Effect on Employment?” (Feb. 2013), p. 21, available at http://cepr.net/documents/publications/min-wage-2013-02.pdf.

[19] Kelly McCarrier, Frederick Zimmerman, James Ralston, and Diane Martin, “Associations Between Minimum Wage Policy and Access to Health Care: Evidence From the Behavioral Risk Factor Surveillance System, 1996–2007” (Sep. 2011), available at https://ajph.aphapublications.org/doi/10.2105/AJPH.2006.108928.

[20] Tsu-Yu Tsao, Kevin Konty, Gretchen Van Wye, Oxiris Barbot, James Hadler, Natalia Linos, and Mary Bassett, “Estimating Potential Reductions in Premature Mortality in New York City From Raising the Minimum Wage to $15” (May 2016), available at https://ajph.aphapublications.org/doi/full/10.2105/AJPH.2016.303188.

[21] Otto Lenhart, “The Impact Of Minimum Wages On Population Health: Evidence From 24 OECD Countries” (Nov. 2016), available at https://link.springer.com/epdf/10.1007/s10198-016-0847-5?shared_access_token=jeCN1D4XbH56U7e3BhH8w_e4RwlQNchNByi7wbcMAY6sPdil0eb0JKZjJ3TCt4gDssIymPhkGUceDe_2gtFOPjoPcv0-mKSrQbWJR_dJGCiKOfPhZpM3tXBmiyLfkOMb5tN0OwoT1oQYcjjELBaX6Q==.

[22] Kerri Raissian and Lindsey Bullinger, “Money Matters: Does The Minimum Wage Affect Child Maltreatment Rates?” (Jan. 2017), available at https://www.sciencedirect.com/science/article/pii/S0190740916303139.

[23] Lindsey Bullinger, “The Effect of Minimum Wages on Adolescent Fertility: A Nationwide Analysis” (Mar. 2017), available at https://www.ncbi.nlm.nih.gov/pubmed/28103069.

[24] Aaron Reeves, Martin McKee, Johan Mackenbach, Margaret Whitehead, David Stuckler, “Introduction of a National Minimum Wage Reduced Depressive Symptoms in Low‐Wage Workers: A Quasi‐Natural Experiment in the UK” (Apr. 2016), available at https://onlinelibrary.wiley.com/doi/full/10.1002/hec.3336.

[25] Maggie Fox, “Major Depression On The Rise Among Everyone, New Data Shows” (May 2018), available at https://www.nbcnews.com/health/health-news/major-depression-rise-among-everyone-new-data-shows-n873146.

[26] Trymaine Lee, “A Vast Wealth Gap, Driven By Segregation, Redlining, Evictions And Exclusion, Separates Black And White America” (Aug. 2019), available at https://www.nytimes.com/interactive/2019/08/14/magazine/racial-wealth-gap.html.

[27] Id.

[28] Tracy Jan, “White Families Have Nearly Ten Times The Net Worth Of Black Families. And The Gap Is Growing” (Sept. 2017), available at https://www.washingtonpost.com/news/wonk/wp/2017/09/28/black-and-hispanic-families-are-making-more-money-but-they-still-lag-far-behind-whites/.

[29] Thomas Shapiro, Tatjana Meschede, Sam Osoro, “The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide” (Feb. 2013), p. 4, available at https://heller.brandeis.edu/iasp/pdfs/racial-wealth-equity/racial-wealth-gap/roots-widening-racial-wealth-gap.pdf.

[30] Id.

[31] Laura Huizar and Tsedeye Gebreselassie, “What a $15 Minimum Wage Means for Women and Workers of Color” (Dec. 2016), available at https://s27147.pcdn.co/wp-content/uploads/Policy-Brief-15-Minimum-Wage-Women-Workers-of-Color.pdf.

[32] David Cooper, “Raising The Federal Minimum Wage To $15 By 2024 Would Lift Pay For Nearly 40 Million Workers” (Feb. 2019), available at https://www.epi.org/publication/raising-the-federal-minimum-wage-to-15-by-2024-would-lift-pay-for-nearly-40-million-workers/.

[33] National Partnership for Women and Families, “America’s Women and the Wage Gap” (Sept. 2019), available at https://www.nationalpartnership.org/our-work/resources/economic-justice/fair-pay/americas-women-and-the-wage-gap.pdf.

[34] National Partnership for Women and Families, “The Wage Gap in Rhode Island” available at https://www.nationalpartnership.org/our-work/economic-justice/wage-gap/the-wage-gap-in-rhode-island.html.

[35] Laura Huizar and Tsedeye Gebreselassie, “What a $15 Minimum Wage Means for Women and Workers of Color” (Dec. 2016), available at https://s27147.pcdn.co/wp-content/uploads/Policy-Brief-15-Minimum-Wage-Women-Workers-of-Color.pdf.

[36] Alexandra Gaines, “The Straight Facts on Women in Poverty” (Oct. 2008), available at https://www.americanprogress.org/issues/women/reports/2008/10/08/5103/the-straight-facts-on-women-in-poverty/.

[37] Rachel West, “The Gender Wage Gap Is Wider in States with a Low Minimum Wage” (Sept. 2016), available at https://talkpoverty.org/2016/09/23/gender-wage-gap-wider-states-low-minimum-wage/.