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March 31, 2003 Issue

Is a Minimum Wage Increase in Your Organization's Future?

Your March 17 issue of Astronology touched on controversial minimum wage, paid family medical leave, and comparable worth legislation. This issue's exclusive focus is minimum wage legislation. The next two issues will explore paid family medical leave and comparable worth.

Many organizations perceive minimum wage as irrelevant. Market pressures from recent labor shortages have made this issue a moot point. In additional, many national organizations internally pay a "living wage" above minimum wage.

Astron Solutions' nationwide experiences indicate growing concerns, however, that minimum wage legislative changes may have profound implications.

Some organizations have made a commitment to provide employment in economically depressed areas of the country. Here, the minimum wage provides a means for the organization to offer full-time employment, and medical and retirement benefits, to far more people than possible at higher wage rates.

There is concern over most pending legislations' automatic escalator features - required annual minimum wage increases. Theses artificial escalators impact compensation program management. A minimum wage increase could create a domino effect, requiring multiple pay rate adjustments system-wide. For example, a number of Astron Solutions' clients set their lowest range minimum as a multiple of the minimum wage.

So what are some of the pros and cons of a minimum wage adjustment?

The Almanac of Policy Issues offers the following synopsis of the controversy surrounding the minimum wage:

"Opponents...argue that increasing the minimum wage will simply increase unemployment, as small businesses who pay such wages are forced to make layoffs. Some argue that every ten percent increase in the minimum wage results in a loss of 100,000 jobs.

"Supporters point to a controversial study by Princeton economists David Card and Alan Krueger of minimum wage employees in New Jersey, which found little or no impact on employment. Economist Robert Solow, an MIT Nobel Laureate, wrote in a 1995 New York Times article that the 'main thing about the research is that the evidence of the job loss is weak... And the fact that the evidence is weak suggests the impact on jobs is small'."

Further controversy springs from the issue of who earns minimum wage. Supporters point out that 68.2% of those making minimum wage are adults. Detractors claim that 86% of those affected by the proposed increase are well above the poverty line due to their living arrangements.

Like it or not, the minimum wage is firmly embedded in American wage laws. It was established in 1938, in the Fair Labor Standards Act (FLSA), at 25 cents per hour. In terms of real value, it reached its peak in 1968, at $1.60, or $8.42 in 2003 dollars, and has fallen 30% below that level today.

Since the last federal increase in 1996-97, a full-time minimum wage worker makes $5.15 per hour, or $10,712 per year. The Fair Minimum Wage Act, currently under consideration in both the Senate and the House of Representatives, would raise the federal minimum wage to $6.65 an hour in two installments.

Deron Zeppelin of SHRM doubts that such legislation will pass through today's Republican-majority Congress. Then again, he adds, "You never know about the possible enactment of any of these proposals. Something like a minimum wage increase could be attached to Bush's tax-cut package and then passed as a compromise, so anything's possible." (HR Magazine, March 2003)

Wage hikes are much more likely to take place on a state-by-state basis. Kansas and Ohio are the only states with minimum wages lower than the federal. Alaska, Washington, Oregon, and Connecticut are at the vanguard of living-wage legislation. A handful of other states have no minimum wage established.

In the case that a state's minimum wage law conflicts with the nation's, employers must pay their workers the higher of the two, assuming that said workers are covered by the FLSA.

In a recent twist, municipal legislatures are getting in on the living wage game. In New Mexico, this February the city of Santa Fe passed a law raising the hourly pay to $8.50 for private businesses employing twenty-five or more workers, effective January 2004. The figure is a full $1.40 higher than Alaska's high-end state minimum wage of $7.10. In 2008, Santa Fe's minimum will be raised even higher, to $10.50. Business leaders are up in arms, predicting job losses and an exodus of business to other cities, but their challenge to the legislation has been put down by the state legislature.

Regardless of your organization's position on this issue, there is concern regarding the use of legislation to dictate the compensation levels an organization sets. Astron's experience shows that supply and demand, and competition for employees, cause the "unofficial" minimum wage to rise to a realistic level. A key decision in this debate will be whether or not creating jobs and providing health and retirement benefits outweigh the need for an increase to the minimum wage.

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ISSN Number 1549-0467