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Governor Signs Bill Hiking California Minimum Wage

September 26, 2013 1:36 p.m.

GUESTS

Clare Crawford, Executive Director for the Center on Policy Initiatives, a research institute which focuses on economic equity in San Diego.

Joe Sabia, Professor, Department of Economics San Diego State University he studies the effect of raising the minimum wage on the working poor

Related Story: Governor Signs Bill Hiking California Minimum Wage

Transcript:

This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

This is KPBS Midday Edition. I am Maureen Cavanaugh. California is raising the minimum wage to the highest rate of any state in the nation. Gov. Jerry Brown called the increase a matter of justice. The present eight dollar an hour minimum wage will go up to nine dollars by next July and up to $10 an hour by January 2016. The move was celebrated by advocates for the working poor, but business groups say this is no time to boost labor costs. The state's unemployment rate just moved higher last month to 8.9%. And just as a reference point, a $10 an hour full-time workers salary is about $20,000 a year. Joining us to discuss this increase are the guests clear Crawford are the center for policy initiatives a resurgence to which focuses on economic equity in San Diego and Clare, welcome to the program.

CLARE CRAWFORD: Thank you, Maureen.

MAUREEN CAVANAUGH: And Joe Sabia is here. He's a part of the department of economics at San Diego State University. He studies the effect of raising the minimum wage on the working poor, and Joe Sabia welcome to the program.

JOE SABIA: Thank you for having me.

MAUREEN CAVANAUGH: Let me start with you, Clare, but I want to get both of your reactions on this. One of the major points of contention about this increase is that now is not the time, when California is still coming out of a deep economic downturn, to raise the minimum wage. What is your reaction to that?

CLARE CRAWFORD: I will say two things. Now is exactly the time to do this because one of the things that we have seen is the recovery from the recession is that the jobs that were lost by and large were middle wage jobs. And the jobs that have been added since the recovery have been really low-wage jobs, so more and more you are seeing all kinds of effort, San Diegans needing to begin by taking on these very low-wage jobs. There's a dramatic growth in income inequality and raising the minimum wage is one of the things that we can do to actually help stem the tide and really make Californians able to get by.

MAUREEN CAVANAUGH: And Joe Sabia, what do we know about the effects of raising the minimum wage on the idea of trying to get out of the deep economic downturn and are people right when they say now is not the time?

JOE SABIA: I think they are. I don't think there's ever a time to raise the minimum wage and the worst time is a time of economic recession. And the minimum wage is a policy that to quote Mark Twain he said that the trouble with the world is not that people know too little, it is that people know too much that isn't so. And that is never truer than with a policy like the minimum wage. The argument that proponents offer is that it is an effective way to lift the working poor out of poverty particularly in a recession but the reality is that most people who are on the minimum wage are not poor and looking at the census data in the state of California those workers who earn between eight and $10 an hour who are those that would be affected by this increase they represent about 22% of the workforce in California but only 14% of them are poor. More than half live in households with incomes twice the poverty line and over (inaudible) live in households with incomes over three times the poverty line. These folks are second or third earners in middle-class and upper-class families. So in fact it is not the working poor who stand to gain most from a minimum wage increase. It is often younger workers and middle and upper class families.

MAUREEN CAVANAUGH: So what you're saying, you're making the argument that we often hear when it comes to the minimum wage that most minimum-wage workers are basically teenagers.

JOE SABIA: Well in the state of California for example those who earn between eight and $10 an hour are about 40% of them are under the age of 25 and the vast majority are under the age of 30 so they are younger and less experienced, less educated workers.

MAUREEN CAVANAUGH: Clare, what do we know, your organization recently did a report on property in San Diego County. What is the percentage of people in the county who work for minimum wage?

CLARE CRAWFORD: I don't have a specific statistic of people who work for the minimum wage. But I do have a number, total of almost 300,000 people that were working full-time year-round working less than $30,000 a year, which is the amount that it takes for just a single person to live self sufficiently. The numbers that I have seen around who will be impacted by the states minimum-wage are really very different from Mr. Sabia's. I have seen numbers that say that 90% of the people that will be impacted are people that are 20 years old and above and in fact, I mean this is a pretty sad statistic, around 5% of the people that are making the minimum wage will be impacted their making less than $10 an hour. Around 5% are 19 and under. Around 5% are over sixty years old so we have senior citizens having to go back into the workforce. Having to continue working much longer than they may have at really low wage jobs. Just to be able to get by. So...

MAUREEN CAVANAUGH: And Clare, what jobs are most likely to pay minimum wage?

CLARE CRAWFORD: It's your business service sector jobs, a lot of the jobs you see are in retail, they are in food preparation. So there's been a lot of publicity around fast food workers. You're certainly seeing those workers making often much less than $10 an hour. It's pretty common. The average wage for a fast food cook is $9.19 an hour. In California.

MAUREEN CAVANAUGH: Joe, I'm sorry were you going to say something?

JOE SABIA: There really is a great mythology about who are the workers who will be affected by the minimum wage are. Less than 2% of those earning between eight and $10 an hour in the state of California are heads of household with young kids and that's it contrary to the sort of image that many people have in their minds when they think about who are minimum-wage workers. They are not poor. The vast vast majority of them are not pretty clear and I probably both agree on the objective of trying to lift the working poor out of poverty. The question is, is raising the minimum wage an effective way to do that. My research suggests there are better policy alternatives that are much more effective.

MAUREEN CAVANAUGH: I would ask you about that in a moment but what about, Joe Sabia, what about the corollary to raising the minimum wage that it lifts all ships. That, in other words, if the minimum wage worker is now making $10 an hour that the person who used to make $10 an hour is making 12, 13, $14 an hour, and that person who is going to be a lot less poor, is not a teenager.

JOE SABIA: There is very little evidence of sort of spillover effects to those earning above the minimum wage. When a minimum wages rise, the answer is because there's very little incentive for an employer who wants to hire workers and pay them something approaching the value of the marginal product the value of what they produce in an hour to be lifting the wages of others and the argument that raging raising the minimum wage will help to push economic growth, will help increase productivity because these people spend the additional income that they have and will help drive us out of the recession the problem with that is first of all there is no such thing as a free lunch, to increase the minimum wage that they are receiving is being paid by firms were now earning less profit than minimum wage those skilled workers were laid off as a result of minimum wage increases and those even among the 14% of workers would be affected by this policy who are poor, some of them will in fact be heard by the minimum wage increase because employers will a commodity can be lifted out of poverty without a job.

MAUREEN CAVANAUGH: But on the other hand Clare, let's talk about the 14% of workers who will be helped with these two more dollars, what does that mean to someone who's working at a minimum wage job having a two dollar increase? What does that mean in terms of what they can do and what gas they can put the car and putting it on the table.

CLARE CRAWFORD: Sorry. Yeah that is a great question and I think that Mr. Sabia and I are working on clearly different numbers. A lot of times when we look at our research and poverty and working parties from CPI's perspective part of that is matched with actual conversations with workers on the ground here in San Diego. So for example somebody who's not a minimum wage worker that I spoke with worked in the tech sector, she made $8.15 per hour. That is not minimum wage but it is a really low wage. She was a single parent head of household. And for her you know she's living in the reality of paying the cost of living in San Diego. Some of those realities are this. Average rent for around $1400 a month. So, if you look at what the difference between making eight dollars an hour and $10 an hour per year translates to it is about $300-$350 per month. So, that puts you from the average monthly income just comparing it to rent for minimum-wage worker right now in California which has a higher minimum wage than the country is less than the average cost of rent here, so you cannot even bring your entire income toward rent you would not be able to afford your average monthly rent here in San Diego city extra drink of dollars a month actually puts you above the level. It certainly doesn't make it affordable for you to live here it is still only around 20,000 dollars a year, but housing becomes more affordable and even for the person who may be is still living with their parents there is real costs for those people. I think we've heard repeatedly about the growing cost of a college education. There's estimates right now that even for someone attending community college which is the most affordable option four a lot of people and it's one that many more people are turning to, the estimated costs of, for a student living at home is $11,000 per year for them to go to California, to the California community colleges. So that is a huge expense. So the extra two dollars an hour for the person isn't even going to make huge difference. Is going to make college more affordable, they will be able to buy their books, they will be able to pay for the gas and other costs getting to and from work.

JOE SABIA: So the assumption underlying this, right, is that the teenager or the single mom is going to keep their job after the minimum wage goes up and in fact we know some of them will be laid off by employers so we won't have more income to pay their rent or their college tuition because they will be out of work and in a worse position than they were before the minimum wage increase.

MAUREEN CAVANAUGH: You mentioned that there are better policies to try to lift people out of poverty than increasing the minimum wage. What are those policies and what kind of results do we know that they achieve?

JOE SABIA: Sure, so the empirical evidence that is used for census data is that clients consistently, minimum wage increases are very effective at increasing poverty rates. Contrast policies like the earned income tax credit and stakes expansions to the earned income tax credit turn out to be both very effective at promoting work among low skilled workers and raising incomes of low income families. And it is much better targeted to those in need because in order to qualify for the earned income tax credit in fact her family income house to fall below the poverty line or around the poverty line whereas the minimum wage is a much more blunt policy instrument in helping the poor so the earned income tax credit is a better targeted policy and it does not suffer from the incentives for employers to lay off workers that you get from minimum-wage increases the earned income tax credits and expansions to them provide incentives for more work which is the best antipoverty strategy we have and also provides market to exactly the kind of folks are both clear and I want to help.

MAUREEN CAVANAUGH: Let me ask you two, we've recently seen a movement among folks across the country to try to lobby for an increase in their minimum-wage I think is $15 an hour they are protesting for if indeed all of these people are living comfortably with their middle-class parents why is that movement catching on?

JOE SABIA: That is sort of a political economy question about why in light of what the empirical evidence suggests why are folks advocating policy? Some are just well-meaning folks who I would argue are sort of misinformed but there are other reasons why laboring it's for example support a minimum wage increase, one is that they are protecting their own workers, some of the minimum wages are tied to minimum wages per second in order to see the nonunion workers are laid off as a result of higher minimum wages where there wages are protected so it's a way to decrease competition for the types of jobs that union workers are competing for?

MAUREEN CAVANAUGH: One of the things that was said about the minimum wage, clear, the eight dollar minimum wage that we have now and has been in effect in California since 2008 is that it really did not work very well because it was not tied to the increase, the increase in living expenses. And I'm wondering if the minimum wage to be effective, does it really have to be tied to the cost of living?

CLARE CRAWFORD: It does, and actually do want to respond a little bit to Mr. Sabia's comments. But before I do that I will say it absolutely is more effective if it's tied to the cost of living. What we've seen over the years, over the last 40 years is that our federal minimum wage has decreased in value and the purchasing power their regular everyday people has decreased. I think anybody in San Diego was trying to pay their rent, trying to pay their bills know this is true. If you're not getting an increase because the cost of living is going up, you're actually not able to keep up with inflation. So when indexing to inflation does this actually makes sure that the actual value of the minimum wages going up with costs. So it is incredibly important to do that so just for an example of the minimum wage had kept up with inflation at the federal level it would be around $10.75 per hour, right, instead of where it is at which is less than eight dollars an hour.

JOE SABIA: I've done some research on effective indexed minimum wage on poverty and find they are no more effective than non-indexed which is alleviating potteries I'm not sure they are great policy strategy and moreover because they make increases with automatic cost-of-living increases it doesn't allow policymakers to discern when might be a good time or a less I would argue a less worse time to raise the minimum wage because as long as sort of prices are rising you will see an increase of it and if minimum wages do more harm in times of economic recession and the recent recent empirical evidence in peer-reviewed journal articles and to suggest that maybe we want to let legislatures have more flexibility in thinking about the timing of when such hikes might be less harmful as opposed to index hikes which are going to have been generally a most every year.

MAUREEN CAVANAUGH: And you wanted to respond, Clare?

CLARE CRAWFORD: Yes, I do. Thank you. I just want to say one thing that the premise that worker advocate organizations would be advocating for something that results because it resulted laying off workers is just absurd on its face. And the support for minimum wage increases is broad and deep. We polled last year likely November voters, which often don't include a lot of low-wage workers and over like about two thirds of city goods basically 60% of San Diego and supported increasing the minimum wage to $10 an hour and indexing to inflation. Over 90% of low-wage workers across the country support raising the minimum wage because they know what it will mean to them personally. Two thirds of small businesses actually support increasing the minimum wage and tying it to inflation. This is an extremely popular policy because people know what a desperate actually puts dollars in the pockets of regular average everyday people. So, there is certainly a wide variety of people that we are advocating in favor of this. And the data that we see shows that it actually doesn't have an impact on employment, so you know we can compare research and my dad says he doesn't get your data says it does but the fact of the matter is that's not what we're hearing on the ground and when you talk to the average worker is making minimum wage or very little bit above this is an incredible benefit for them and incredibly important.

MAUREEN CAVANAUGH: I have time for one more question. I just want to ask you Joe Sabia, could it be that there is such a push toward the minimum wage because there has been such income stagnation across the board for low-wage and middle income earners for I think something like the past 20 years. I think that people don't seem to a large extent the normal model working the way it used to, that wages continue to go up naturally without government intervention like raising the minimum wage.

JOE SABIA: That may be. I still think pressures from interest groups are the primary reason we seek is rising because there's always been white sort of public support for minimum wage increases even during times of nonstatic meeting economy, but again I would argue there have been some in politics who forget that policymakers should think a lot more about science and science-based research when making decisions and I think a lot of those criticisms have been very fair. And I think this is a circumstance where policymakers ought to take a longer, harder look at what the scientific research has to say on this question about poverty. Even if you use Clare's assumptions that there are no adverse employment effects for minimum wage increases they're still going to be an effective at helping the poor and the poor deserve more than symbolic policies that you know are claimed to help them that actually don't. It is of public policies that will actually help lift them out of poverty.

MAUREEN CAVANAUGH: Okay we have to leave it there. I'd like to thank my guests Clare Crawford executive director for the center and policy initiatives, Joe Sabia professor in the department of economics at San Diego State University. Thank you.

CLARE CRAWFORD: Thank you, Maureen.

JOE SABIA: Thank you.